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{{#Wiki_filter:. __                -  -                                        .-.                  -
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        .      ,        e 750.    ,
km      )
            )                                                                                                        '
          .                  i
  '~
:  !j                                  COMMONWEALTH OF PENNSYLVANIA
(:)-                      L d                                      PUBLIC UTILITY COMMISSION 2l                                                                                                      l 3'                                            -
                                                                          - - - - - - - - - - -x                                ;
                                                                                                                                ^
i 4 i Pernsylvania Public Utility Commission
                      ,''versus Metropolitan Edison Company and
                          ,                                                                                  : Docket Nos.
5          Pennsylvania Electric Company, Respondents.                              : I-79080320 6'                      *      *    *    *    *    *                            -
l                                                                                :
7 l Operating agreement among Jersey Central d Power and Light Company, Metropolitan Edison                                    -: G-80060098 8j Company, Pennsylvania Electric Company and                                        :              '
                          !; GPU Nuclear Corporation.                                                      :
9
                  '      ]                                                                                .
l 10                                                                                    :                    j Affiliated interest agreement between                                    :
11                                                                                    :                  g t                      ;l Electric Metropolitan      Edisonrelating Company,    Companyto  and Pennsylvania the  proposed                  : G-80070101 12 ' combined management of the two companies.                                  -
(:)-,        .
13 !                                                      *                          .                    '
i 14 , Petition of JARI, Incorporated, et al. for                                      : P-80100242 an injunction to enjoin Pennsylvania Electric                            :
15 ) Company and Metropolitan Edison Company, and                                    :
                            ,      for hearings.                                                            :                  L 16 .                                                                                  :
I
                                                                    -------------x 17 f,,                                                            .                                        I
                              )Pages 750 through 993.                      Room 503 18 3                                                  Finance Building
[
Harrisburg, Pennsylvania                          i 19        ,
q Wednesdcy, December 10, 1980 0                    Met, pursuant to adjournment', at 9:05 a.m..                                I 21 y                                                                                                    i
                            'l BEFORE:
22 .
                                !                  EDWARD CASEY, Administrative Law Judge 22 :
24 a                                                                                                :
I i
25 -                                                            e                                        '
B102 [20h            L iL                        C@MMoNWEAhTH REC @RTIN00 MMPONY s7?7 R]1 9t PAD
 
                                                                      '4  75awk I
f[      t        APPEARANCES:                                              g l
2I                SAMUEL B. RUSSELL, Esquire.
            ',              ALAN MICHAEL SELTZER, Esquire 3l                Ryan, Russell and McConaghy l              P.O. Box 699 4l                Reading, Pennsylvania 19603 (For Met-Ed and Penalec) 5 DENNIS S. SHILOBOD, Esquire                          ,
6                  HOWARD F. MESSER, Esquire Strassburger, McKenna, Messer, 7                    Shilobod and Gutnik 3101 Grant Building                  -
8                  Pittsburgh, Pennsylvania 15219 (For JARI, Incorporated) 9 STEVEN A. MC CLAREN, Esquire 10 '                P.O.. Box 3265 l
Harrisburg, Pennsylvania 17120 11 '
1 (For PUC Commission Trial Staff) 12 I                LEE E. MORRISON , Esquire                        ggg i
Berlack , Israels and Liberman 13 {                26 Broadway l
New York, New York 10004                    ,
14 '                  (For General Public Utilities) 15                  DAVID A. FAZZONE, Esquire i            Sullivan and Worcester 16 i                100 Federal Street Boston, Massachusetts 02110 17                    (For Theodore Barry and Associates) 18 0                                      .
r i
19 l                                                          3' 2 0 ,..
l              l 21 l l              I l
22 o d
2a l        25 '                    ,
1
 
W s -  .          ,
l l
* I  I C. 0.- .N T. _E_ .N T_ _S.
j O_            2 WITNE3SES                            DIRECT    CROSS      REDIRECT    RECROSS 3'        Perry L. Wheaton                                                --        --
4 (By Mr. Morrison)                        754 5
(By Mr. Shilobod)                                830 836 6                                                            908 920 I                                                            934
  '                                                                            951 8
i        (By Mr. Messer)                                782 8                                                            917
              -      i 10 ll(By Mr. McClaren)                                        976 984 11 (By Judge Casey)                                785 835 L'                                                                      924 I3 !                                                          947 980 14                      .
John P. Wicker                                                      -        --
(By Mr. Morrison)                      761 (By Mr. Shilobod)                              840 845. , .
(By Mr. Messer)                              769 783 18 '                                                          810 i
20 (By Mr. McClaren)                              953.
21 f
                        ;      (By Judge Casey)                                844
            .  ., , l
                "' i . Dennis J. Schumaker                                                        -          --
03 !
                        ;      (By Mr. Morrison)                    764 I
O~~.        ~j e4 i
V                            (By Mr. Shilobod)                              925
                ,5l                                                            932
                ~i                                                                  o
                        !      (By Judge dasey)                              927 ccMMoNwcAt.rs neroRTING coNPANY 47tr. 7st.7t so
 
                                                                      *75I-A f
        '!                          saalatts                              O l
2      NUMBER                      FOR IDENTIFICATION IN EVIDENCE 3l      PUC Administrative Staff 4
1                                757              990 I
JARI
* 6 4                              868              887        ;
Penelec/Med-Ed
          .      10 through 13                  988              988 9l i
10 11 12                                    ,
t    13 14                .
15 16 l l      n                                                .
18 19 f s
20 21
,      22 l  .
l
  -    24 25                                              ,
 
r1                                                                          752 l l
1
  ~
P,_ 3 g Q E,E g 1 g G,g, T1,S1        2                JUDGE CASEY:  We will call the hearing to order at 3      this time.
4                This is the fourth day of scheduled evidentiary 5      hearings into the consolidated cases which have already been 6      read into the record on prior occasions, and I will direct 7      the court reporter to continue with that caption and format.
8                Yesterday,- we continued the testimony presented by    ,
9      the GPU System and affiliated companies; that is the witnesses 10      Mr. Verrochi, who is currently the President of Pennsylvania 11      Electric Company, and Mr. Donofrio,, who is the controller of-12      that company.
13                They are here this morning, but I believe cross-14l' examination was co,ncluded at that time.
15                Today, we have scheduled the testimony to be 16      presented by the Commission Administrative Staff in an effort 17 to get pertinent and germane    parts of,the Theodore Barry 18      and Associates' management consulting audit report into the 19 record.
20                  Specifically, it is:that report that pertained to 21 the proposed combination of management of officers and the 22
                      ,. Board of Directors of Penelec and Met-Ed which would beccre
                ,3 l Penelec West and Penelec_ East.
                ~
O,              2.                The second affiliated interest agreement which we ar 25 concerned with in this proceeding is the so-called GPU Nuclear COMMONWEAL.TH REPORTING COMPANY 4777' 761 71SO
 
r2                                                                          .
753 I
  ,{'            3 Corporation operating agreement with the various companies',g 2
the three operating utilities, two in Pennsylvania. and the one 3          of course, in New Jersey, which we are not interested in and 4
have no regulatory control over.
5                    Mr. Lee Morrison is the Assistant Counsel for the-l 6          Commission who has been designated as staff counsel for the l
1 I
Commission Administrative Staff.      He will conduct the direct 8
examination.
9                  Mr. Fazzone, who is from Boston, Massachusetts, ~is 30          the counsel to Theodore Barry and Associates' officials and 11                                              However, he will not be
!                          will sit in on this proceeding.
12 engaged in presenting testimony; is that correct?            g 13                                    That is true, sir.
MR. FAZZONE:
I4    I              JUDGE CASEY:    As I understand it, there has not been i
l              15 l any prepared testimony submitted on behalf of the three 18 individual witnesses. They will testify concerning matters in I
l                          the report.                              ,
18 Preliminary to that; they may give a brief 19 biographical study or history of their qualifications and
              'O background; and then they will be available for                .
21 i::ross-examination.
22            -
i,      . Mr. Morrison, are you ready to begin?
23 l
A
      ,I MR. MORRISON:    Yes, I am.
g
    ~'          'T
                ' (
Your Honor, we would wish'to have all three 25 gentlemen sworn in at the same time. ,
                                        -                    -        cm m -
 
r3 754.
l I                                                                            i
    ~'        ''                                                                            '
Whereupon, 2
PERRY L. WHEATON JOHN P. WICKER                              l and                                  j DENNIS J. SCHUMAKER                            ;
having been duly sworn, testified as follows:
JUDGE CASEY:    Please be seated and please identify' them individually for the record.
DIRECT EXAMINATION 8
g MR. MORRISON:    The gentleman directly across from me is Dennis Schumaker. The gentleman in the middle of the            '
10 three is Perry Wheaton, and the gentleman to my extreme right is John Wicker.
12 m
    .                            JUDGE CASEY:    Would you ask them to give not only-l
,                      their business address, but their home address, if you will, 14 Mr. Morfison?
MR. MORRISON:    I will first address my questions to l
l Mr. Nheaton.
i                                Would yoti state your name an'd address and, as Judge 18 g        Casey has indicated, your home address additionally, Mr.
Wheaton?
g                    WITNESS WHEATON:    My name is Pe rry L. Wheaton.-    I am a partner and the General Manager in. the consulting firm of
                =        .
g'      Theodore Barry and Associates with offices at 50 Rockefeller Plaza, New York, New York, Zip Code 10020.          My home address is 24
[
25 51 Boulder Road, Wellesley, Massachusetts, and the Zip is a
t                  a                  COMMONWEALTH REPoR7tNG COMPANY #717 761 71*O
 
r4                                                                        ,
755 I
02181.                                                            g
          ~1 MR. MORRISON:  Mr. Wheaton, could you give us some 3
of your background, if you would?
4 WITNESS WHEATON:    Yes. I. have a Bachelor of Arts 5
Degree from Hamilton College and an M.B.A. from Rutgers l        6 University.
7 In addition, I have over 14 years of management 8
consulting srperience, and I am both a Certified Public
      -        Accountant and a Certified Management consultant.
10 During the pact five years, most'of my work 11 experience has focused on the public utility industry.        During V
12 that time, I have directed a: variety of projects for            g 13 investor-owned utilities, public utility commissiens and -
I4 consumer idvocates..
15 '
I have previously testified in New Jersey and 16 Pennsylvania with respect to the construction management 17 audit of the Salem nuclear generating station unit I and 18 also have testified before the New York State Public Service l
l        19 Commission with respect to Theodore Barry and Associates' 20 management and operations audit of New York State Electric 21 and Gas Corporation.
        '2
        ~
MR. SHILOBOD:  Excuse me, Your Honor. The witness 2d is reading from a statement.    't think this is improper. Ig'e 24 1
l is going to give direct testimoiy, I think we should have the
          '5 direct testimony rather.than have a witness sit here and read
 
                \
t
: c.          j      from a paper that we have not even seen.
O.
p 2!                        JUDGE CASEY:          I would disagree.      No matter how it l
3lgoesintotherecord,Ithinkthatthisisabiographical 4          sketch, and it makes it eas'ier for him to respond to a number 3
of questions just to go through the whole thing.
6 If you want to cross-examine on his qualifications, 7
you can, or perhaps the biographical sketch might be                        -
a reproduced; but at this point, in the interest of expediency 8'        and saving time, I will permit them. As long as he is testifyins to          under oath as to the facts that appear on that biographical 11 sketch,      I am satisfied.
12 MR. SHILOBOD:          Normally, the custom. is that if 3
                  '    there is          written testimony being used, that the opposing-I4 counsel is given a copy of it, and I think that it is uncommon 15 i to come in with written testimony and ' read from it.
I8                                              Written testimony as to the substantiva JUDGE CASEY:
17 issues in the case, I would agree;.but,the biographical sketch, I think it would make it easier.
i I8 !                        If you want to insist that it be distributed, you 20 i                    .
j: may have it.
21 l (Documents handed to Counsel Shilobod by Counsel
            ~~
Fazzone.)'
li 27l-                      JUDGE CASEY:          You may proceed.
              '4 MR. MORRISON:          Would you continue, please, Mr.
25 Wheaton?                                              ,
CoMMONWEAt TM REPoR7tNG COMPANY #717' 761 7150 1
 
r6        i
                                                                                        .757 I
In-March of this year, I testif: L g'
    ~
3l                  WITNESS WHEATON:
2        before the Pennsylvania Public Utility Commission in the 3        rate proceedings involving Metropolitan Edison Company and 4        Penelec in Docket Number I-79040308 with respect to our 5        management and operations study of the Pennsylvania operationsj 6        of General Public Utilities Corporation.
7                  I have had overall responsibility for that study 8        for which our final report was issued in September, 1980.
9                  I have also presented the results of that study to 10        the Ertle Congressional Task Force on Three Mile Island 11        recovery.
12                    MR. MORRISON:    At this time, Your Honor, I would.
b 13        like to have marked for identification the Theodore Barry ano.
34
                    ,    Associates' report,. We do not have three copies for the 15l' court reporter at this time, but we will provide those, I gues.
16 over the noon recess.
17 I would ask that that be marked Administrative I8    i    Staff Exhibit Number 1.
18 JUDGE CASEY:    PUC Staff Exhibit Number 1 will be so "O I
              ~
l    marked for identification.
21                                          (Whereupon, the document was marked as PUC Adminis rative 22 I          .
Staff Exhibit No. 1 for P                                      identification.)
93 Mr. Wheaton, I show you the report
          ,                        MR. MORRISON:
      ~        24 i      that has been marked as Administrative Staff Exhibit 1, anc I i                      l 25 ask if you are familiar with this docpment.
l                      .
COMMONWEAt TH REPORTING COMPANY a7*7 761 7130
 
r7 758 l
      'i            1                    WITNESS WHEATON:    I am.
    )~            2,                    MR. MORRISONr  Is this the document that is, in fact <
i 3! a report that you just referred to?
4                '
WITNESS WHEATON:    Yes, it is.
5                    MR. MORRISON:  Would you continue with the 6          description of your connection with the report in this case 7          and also the Theodore Barry and Associates' function with -
a          respect to the report?
                ,  9l                  WITNESS WHEATON:    It is my understanding that these 10          hearings are addressing two major issues, the establishment of i
11 I        GPU Nuclear Corporation and the proposed management combinatio9 12          of Penelec and Met-Ed.
O~            13                    TB&A, of course, is pleased to have the opportunity 14          to provide you, Judge Casey, and the Pennsylvania Public 15 Utility Commission with the results of our almost year-long l                16 l study of GPU..
1 i
17 l                  John Wicker and Dennis Schumaker, who are seated on i
* l I8          my left and right, respectively, are here with me today and i
18 are prepared to answer whatever questions you or the parties 20 may have on these two important issues.
21 Mr. Wicker, who was responsible for our review of
{                22 the, proposed management combination at Met-Ed and Penelec, is 43 also a partner in our firm.
(              24
      ,                                  MR. Wicker has extensive background in utility
                  '5I operations and directly reviews the operations and organizatio)
COMMONWEALTH REPORTING COMPANY 87 t 72 781 7150 t
5
 
r8                                                                          7 5 9' .,
I l
i
  ~
1linanumberofutilities.
2 He has also assisted a number of utilities in 3
implementing major improvement programs which have resulted 4
in significant cost savings to ratepayers.
5                Mr. Schumaker, who is responsible for our review-6    of gpg s nuclear operations, has worked on various management 7    audits and implementation projects in the utility industry 8    in the area of engineering and construction, electric system 8
operation and maintenance, power supply operations and                    j i
10 maintenance.                                                              l 11                  While the findings, conclusions and recommendations I2 j
ofourstudyaredocumentedin.ourfinalreport,whichisE!k              N w
i l
I3    of the public record, I would like to state, as we see them, 1
14 our role and respo,nsibilities with respect to these proceedingc 15 '                As an independent party    whose client is the PUC's 16                                        .stlity is to provide you and Bureau of Audits, our rest    o .
          "      the parties with an objective statemen,t and an assessment of 18 the facts concerning those aspects of the final report which 19 '  relate to the proposed management combination and the formatios 1
20 of GPU Nuclear Corporation.
21 Our conclusions, ac stated in our report, are four-2 fold as they affect these' proceedings.
First,  GPU's original draft plans for the managed h '
I                combination did not clearly identify how the proposed 25 management combination would benefit Met-Ed and Penelec and
 
i I    -
rs      c                                                                                              Nu s -  e a
1, its Pennsylvania ratepayers.
i O            2                      The company's proposal identifies significant 3 ; qualitative and quantitative benefits now which would accrue 4            to the ratepayers of Pennsylvania and Met-Ed and Penelec.
5                      Three, to accomplish these benefits, the company 6            needs to implement the detailed recommendations which are ,
7            outlined in our report.                                                              -
8                      Last, the overall concept of the GPU Nuclear 9            Corporation is appropriate, but its roles and functions had 10            not been fully documented at the time of our review.
11                        MR. MORRISON:    Mr. Wheaton, you have testified that 12 '          you had overall responsibility for the-study which forms h            13 essentially the final report.
14                      . Sir, I as.% you:    are the facts and the information is ! and the conclusions contained in the report, as presented to i
h 16 ! the Commission in these proceedings, true, complete and 17 !          accurate to the best of your knowledge, information and      -
I l
18
* belief?
a a
19 "                      WITNESS WHEATON:      Yes, they are.
                        ;i 20 f                      MR. MORRISON:    And if you were testifying as to the 21 l precise information and the conclusions as contained in that t
22 l report, would there be any difference between your answers 23 } given in such testimony today and the information and h            24 I
conclusions as contained in the report?
25!.                    WITNESS WHEATON:      No.
e COMMONWEALTH RE*oRTING COMPANY #717 761 7150                      +
u                                _  __ _    . . _ . _ _ ._ _    .__ . _ _ . _ . -  -
 
rio                                                                            761 l
l ll              MR. MORRISON:    Thank you, Mr. Wheaton.              ggg 2              Your Honor, at this point, I would like to have 3    Mr. Wicker address some preliminary comments.
4              I would ask, Mr. Wicker, that you state your name 5
and business and home addresses for the record.
6              WITNESS WICKER-    My name is John Peter Wicker. I am 7    Accountant and Management Consultant for Theodore Barry and-8 Associates.
8 My business address is 50 Rockefeller Plaza, New IU    York, New York, 10020.      My home address is 18 Deer Run Circle, II Charham, New Jersey    07928.
12                                                                          -
MR. MORRISON:    Sir, could you give us your backgg k-            13 for the record?
I4                                    I ha.ve a Bachelor of Technology WITNESS WICKER:
15 Degree from Brunel University, Oxbridge', England and a Master 16 of Science Degree in Business Studies and Operational Research l
I 17 from the Imperial College of Science and Technology, London, 1
18 England.
19 I am a Certified Management Consultant and have over 20 l    seven years of consulting experience in Europe and the United 21 States.
l 22
                            .      MR. MORRISON:    Could you tell us what your connectic:
l                  43
                  ~
with the Theodore Barry and Associates' report has been?
l r~.
24
    '"                            WITNESS WICKER:      I was responsible for TB&A's
                  'S
                  ~
review of the proposed combination of> Metropolitan Edison and
 
rli                                                                                          762 l
i m          1          Pennsylvania Electric Company.
O            2                      The focus of TB&A's review in this area was en 3            organizational issues as they relate to the proposed combina-I' 4            tion.
5                      Methods and. systems were reviewed to the extent that I
6            they might impact the proposed combination.
7                      The scope of the review included the transmission 8            and distribution, business office, non-nuclear generation, 9      I    financial, arid administrative support, organizations of both l
10            Pennsylvania operating companies and GPU Service Corporation.
11 ;                    The role of the GPU Service Corporation and its l
12 j          relationship with the Pennsylvania operationg companies were O-          13 !          reviewed to the extent that they might be affected by the l
14            proposed combination.
15[                      MR. MORRISON:            Sir, could you tell us specificalli-i i
16 I          what TB&A reviewed and what the conclusions were concerning 17 l          the management combination?                        -
l 1
l                18 l                    WITNESS WICKER:            The original draft plan for the I
19 '          management cod ination prepared by GPU in late March                1980 20          l' did not clearly identify how the management combination would 21 benefit Met-Ed /Penelec or their Pennsylvania ratepayers.
22 '                    Considerable modification was required tc the origina 23 l                              proposal to address the needs and concerns of the company's O-          ,.
various publics.
l 25 During the time period of this study, TS&A moni:cred ccMMcNwcA m armennNo comp ANY        .M 7 76 .U M
 
rl2        j                                                              ,  76,3.,
m                i      and critiqued this iterative process.                          g
( ._
l                                                                    W 2i                  The company's proposal now includes an improved.
3        organization ple.a, an objective process for selecting key 4l personnel, detailed plans for communicating the management 5        combination to all parties, and the identification of and 6        commitment to the significant qualitative and quantitative 7        benefits which would accrue to the combined company and their a        ratepayers in Pennsylvania.
9                  MR. MORRISON:    Sir, could you tell us in summary to        what the recommendations of Thwodore Barry and Associates, as I
il        contained in the report, are?
I l
12 !                WITNESS WICKER:    TB&A's principal recommendation, b              13        in this area are two-fold. First, we believe that the compang 14        should complete the management combination of Metropolitan Edison and Pennsylvania Electric and, second, that they take 15 l 16 i      the necessary steps.to complete the consolidation of 17        division operations, and those are explained in more detail irt is        the report which we have submitted.
19                  MR. MORRISON:    Thank you.
20 l                Are the information, analyses and conclusions contained l
21        in the report true, accurate and complete to the best of your 22 ,      knowledge, information and belief?
j -
23 l                WITNESS WICKER:    Yes, they are.
        .            l
                                    'MR. MORRISON:    Mr. Wicker, if you were testifying 24 l 25        today as to those portions of the report for which you have
 
    'r13                                                                                                  764        .
i I
t had responsibility, would your answers and your conclusions 3l 2            be the same as those contained in the report?
3I                      WITNESS WICKER:        Yes, they would.
I                                                                                            !
4                        MR. MORRISON:      Thank you, sir.                                      .
5                        I would now ask that Mr. Schumaker state his name                      l l                    6            and address for the record.
7 WITNESS SCHUMAKER:        My name is Dennis James            '
i i
8i            Schumaker. I am with Theodore Barry and Associates.              My            :
I l
8            business address is 315 South LaSalle Street, Chicago, i                                                                                            ,
                    . \
18 ! Illinois              60603.      My home address is 10630 Indianc,la, 11 I            Whitmore Lake, Michigan, 48189.
I 12                        MR. MORRISON:      Would you tell us your position'with O'              13 l Theodcre            Barry and Associates, Mr. Schumaker?
14 ll                      WITNESS ,SCHUMAKER:        I am a Senior Associate with l
I 15 f Theodore Barry and Associates.                                                                '
l                                                                                            '
16 MR. MORRISON:- What has been your connection with 17 the report?                                        ,                                i la 'i,                          TNESS SCHUMAKER:      I.was responsible for TB&A's li 38 review of the proposed establi.shment of the GPU Nuclear
                  'O 4 j; Corporation.
                  ~
                    ,1 0l
                    ~
Our review focused on the existing organization at li I
22 a TMI, and the organizational plan which was being undertaken 43
                    ~
d at that time for the GPU Nuclear Corporation relative to r                        I organizational responsibilities, commissions and functions of
                                ,l 25          i staffing.                                      ,
COMMONWEALTH REPORTING COMPANY 4717- 761 71"O
 
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1
    -        1                    MR.'MORRISON:    Would you tell us some of the        lll
:          specifics of the Theodore Barry and Associates' function in 3            this area and your conclusions?
4I                      WITNESS SCHUMAKER:  Our overall conclusion of tha 3            study was that the overall concept of the nuclear organization; l
6l was appropriate, butits roles and functions had not been i
j 7l          adequately documented at the time of our review.
t 8!                    The concept of the nuclear organization concentrates 9          all of the major activities associated with TMI under one i
10 '          organizational entity.
11                      Some of the benefits of such a nuclear organization 12 ;
l are improved upper management, visibility of nuclear activi      's, s-13 l          a greater depth and breadth of specialized technical skille, I
14 -          improved communication with outside agencies and an ability 15            to attract better people and full-time dedication of an i
l                  i 16            organization to safe operation of nuclear facilities.
l IT                      The speed at which this organization was developed 18            and the current state of flux that has existed as the. company i
18 f moves to create the GPU Nuclear Corporation has not permitted 20            the complete documentation of well-defined roles and functions.
I                        I 21 To provide assurance that ' individual talents are I
'            ~~ , used effectively, that redundancies and duplications of effort 11 (
              .,3 l    are avoided and that lines of responsiblity and organizational 2
I
                *I interfaces are clearly understood, the details of the
                $l'        organization were clearly defined and documented.
l                      l                  COMMONWEALTH REPORTING CCMPANY i717 761-7150
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l                                                                                                                                                              '
l                                                  l i                                                  i t
Iq                                      MR. MORRISON:                  So, you have told us that you are O~'                                        2 l
responsible for the review of the proposed GPU Nuclear 3              Corporation.                                                                                                                                          ,
i 4                                      Concerning that aspect of the report, Mr. Schumaker, 3              I ask you if the report, information,. analysis and conclusions l
6              therein are-true, accurate and complete to the best of your 4
7              knowledge, information and belief.
* 8l                                      WITNESS SCHUMAKER:                                Yes, they are.                                                            i 8
MR. MORRISON:                  And, sir, if you were testifying 10 !            today as to the analysis, information and conclusions in that Il report, would your answers be the same as those contained in 12              the report?                                                                                                                                            j Om                                        13 WITNESS SCHUMAKER:                                Yes, they would.
I4 '
MR. MORRISON:                  Thank you, sir.
Your Honor, at this point, we will make the witnesses i
i 18 ! available for cross-examination as to the report.                                                                                            This is the II ! only evidence 'on direct that the Staff will be presenting, la the report itself.
19 ll                                      Again, to sum up, Mr. Wicker had responsibility for I 20                                                                                                                                                    Mr.
h the review of the proposed management combination;.
21 l Schumaker for the proposed GPU Nuclear Corporation; and Mr.
i 22                                                                                                                                                                        '
Q Wheaton overall responsibility for the study and the report 23 i              .
9 ltself.
We would offer or make the witnesses available for 23
                                                              , cross-examination at this time.                                                                                      ,
                                                            )
e
                                                            !                                      CoMMoNWCAL.TH REPORTING CCMPANY #7171 781 715C I
    - - - - - , -  y,-.-,- . , - . ..m-,    ,.,-.-#              -
                                                                    . - . . - . . . -      . . - _  , , _ , ..m--,      - . - - _ _ _ .  , . _ . - - - . - - - - - . - + _ - . - .                    - --- -          -
 
767, r16    :
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m      1                      JUDGE CASEY:  Weknowwhatareasthewitnesseswerg 2! responsible for.            I don' t suppose there is any way that you i
3i could look through the report -- did they actually write the-4'          report, or did you have an office staff compile your work 5i notes or what-have you and then you made the report from it?                          ,
l 6                      WITNESS WHEATON:    Mr. Wicker and Mr. Schumaker wrota' i
7l          it and played a key role in pulling together the respective                  !
              ,                                                                                    e 8          sections that they were responsible for.                                      .
9'                      JUDGE CASEY:  Is there any way by looking at the i
10          index, which I am thinking of perhaps making it easier for i
11          the attorneys who will cross-examine the witnesses?
i                                                                            -
12                      WITNESS WEEATON:    In. terms of the Nuclear Organiza-13          tion, Chapter V highlights key aspects of that.              I think the O
l I        14 j        major issues happen to revcive around the areas called l
15 !          " Organization," which are keynoted in the nuclear chapter.
IG                      With respect to the proposed combination of the II          Penelec/ Met-Ed, I would suggest Chapter VI. It is also i
l 18 important to keep in mind that Chapters I and II are quite 38          vital to an understanding of, one, what our overall objectives l
9 0ll and scope were in terms of the study, our approach and i
21 methodology that was used and, secondly, the second chapter, i
22 i    the summary chapter gives what the overall assessment of the
          '3 l study was.
We happen to be looking at two aspects of our                lhh r
          'd' overall study which covered many, man,y issues as outlined in I
l
                  ;                  COMMONWCALTH REPORTING COMP ANY 71 *P 76 f ?' 50 I
 
l
  ,            ,        rl7                                                                                    76 &.
I the Table of Contents.                                            ,
2 There are portions of the study that are in effect 3
in this record today that have interconnections in other I
iNpartsofthestudy.
5 To the extent that those issues come up, I will try' 6
l                                      to provide the connecting links if anybody has any questions.
7I                  I think, to answer the qumstion, focusing on.I, II, a
V and VI would be most helpful for people, but there may be gI j  some connections with the other chapters.
10 JUDGE CASEY:              First, I think I will ask Mr. Russell I
and his co-counsel, Mr. Jolles, whether they will be interested-I t, !
                                  ~i in cross-examining any of the Theodore Barry and Associates' Ou                            n witnesses.
                                "'                                            I think we will probably have a MR. RUSSELL:
15 l limited amount of cross-examination, and I suspect that there 16 l
                                    . are other parties before you that have much more extensive.
17 i So, I would suggest that they may cover what we have in mind.
18 So, I would defer to them, if that is all right.
19 JUDGE CASEY:              Mr. McClaren, will Commission Trial 20 Staff, as distinguished from the Commission Administrative 21 Staff, have questions of the witnesses on cross-examination?
                                            .        MR. MC CLAREN: 'We would have very limited questions, t
23 '
Your Honor, and I would defer to counsel for JARI for IbOb                            24 cross-examination.
I 25 JUDGE CASEY:              I will ask thg JARI attorneys, namely COMMONWEAL.TH REPORTING COMPANY e7f7 768 7150
 
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    ^
a 1 c Mr. Shilobod and Mr. Messer, whether they wish to cross-exam m
  .              I                                                                            ,
2!        all or any of the individual witnesses as to their professional 3        qualifications.
MR. SHILOBOD:    We do.
4]
i 3i                    JUDGE CASEY:    Do you want to include that in your        ,
l              .
6        completa cross-examination, or do it separately?
l' 7'                    MR. MESSER:  If it is acceptable to the Court, we 3l would propose that the cross-examination on qualifications 9li      be conducted at this time, and then we could continue with c
10 .
our other examination as that proceeds.
11 i                  However, if information is developed on further 12        cross-examination that deals .with qualifications, we would h l h.        13 i i
likely want to go back.                                                  j 14                    JUDGE CASEY:
Who will be the lead cross-examiner?
I 15 ;                  MR. MESSER:  I will.
16 l'  .
May we then appropriately change our location?
l                  I 17                    JUDGE CASEY:    You may.            ,
18 i
(Pause.)
l          19 l!                                    CROSS-EXAMINATION 1
20                    MR. MESSER:  Mr. Wicker, would you please give us 21 your age?
22 l                  WITNESS WICKER:      I am 32 years old.
23 '                                When did you graduate from the last MR. MESSER:
O 24 l      university that you attended, which I believe was the Imperie.
25 College, what year?                          ,
I_              COMMONWEALTr4 9 EPC RT'NG COMOANO  7t* 761.9'50
 
    ..      ..          i 1    ^*              I                        WITNESS WICKER:                    1973.
.O                    2 MR. MESSER:      Are you a U.S. citizen?
3 WITNESS WICKER:                    No; I am a permanent resident of 4
the United States.
i                                                                                                                        !
;                      5 MR. MESSER:      When did you.come to the United States?,-
6 WITNESS WICKER:                  I first came to the United States 7                                                                                                  !
in 1974 for approximately nine months.                          I returned to the    -
4 8
United Kingdom for the majority of -- in fact, all of 1975, 8
and I have been here on a reasonably permanent basis since 30 early 1976.
II MR. MESSER:      Prior to 1976, were you engaged in 12
        ,                        any management consultant field as an employee of any
()~              I3 I
organization?
Ml                          WITNESS WICKER:
Yes, I was.                            .
i 15ll i MR. MESSER:      Would you please indicate those 16 i      organizations and the dates at which you were employed?
I                                                                                                    '
WITNESS WICKER:                  I was emplo,yed by Brooks la International Corporation, which is headquartered in 19 Montvale, New Jersey from 1973 to early 1978, since which time I
                    'O
                    ~
I have been with Theodore Barry and Associates.
i l
                      ~
MR. MESSER:      What were your duties with the Brooks 41 .Illi
                    " .{j Int,ernational Corporation between 1973 and 1978?
93 :
l                          i                    WITNESS WICKER:                  I served as a staff and manager i
3
{}'','            24 '        in their management consulting practice which principally
                      'sd t      functioned in the area of operational reviews, organizational COMMONWEAL.TM REPtsRTINo COMPANY .7171 761 7850 l
i
 
r20          i                                                                  .. 77L.
l
    "          I analysis and productivity improvement programs for a wide            llk
              ,I                                                                              I
                  ,' spectrum of organizations in the utility service and industrial i                                                                            i sectors.
1 i
MR. MESSER:      Your experience there for that 5
particular corporation was not limited to utilities work, was 6
it?
7 WITNESS WICKER:      That's correct.
8l                MR. MESSER:      in 1978, whenever you joined Theodore
              'I    Barry, in what position were you hired?          What was your title?
10 WITNESS WICKER:      I was hired as a Senior Associate i
11 in, I believe, May of 1978.
I ~' !                                                                            !
(              MR. MESSER:      Is the Theodore Barry group divided
(_        '3 i  into divisions which focus on specific industries?
            "I  !              WITNESS WICKER:
No, it is not. We have a regional 1
15 i
                  ,  organization which -- and the company has a heavy emphasis in 16 '
                  ;  the utility industry, but we do not have a functicnal split.
17 i i              MR. MESSER:      Since 1979, wou.1d you characterize that 18 l                    all of the work that you have done for Theodore Barry and 19 l j  Associates has been in the utility field?
20 l WITNESS WICKER:      The very larger majcrity of it, yes.
I 21 i l              MR. MESSER:      Throughout the United States?
            '2
            ~
                          ,      WITNESS WICKER:' Thro'ughout the United States.
23 '                                        -
MR. MESSER:      In particular, you have indicated to us today that your responsibility as f ar as the TB&A Report is 25 !                                                                              !
                  !  concerned was primarily in the area of the management                  i i                !                  -
i                  COMMONWEALTH REPCRTING CCP ',3ANY #7f 7 7617150          i
 
r21      l 772 I
I            combination; is that right?
(]) ' '
1                          WITNESS WICKER:    That's correct.
3 MR. MESSER:  Could you indicate to us whether or 4l not that has been the focus of your attencion in other casesL i
5 that you have been involved.in?
I j                    6 i                      WITNESS WICKER:    Reviews of the organization and i
e  I
                      'j          operations of utility companies has been the pr". mary focus 'of I
a; my experience with TB&A.
                  -                              However, as I am sure you will appreciate, there are 30 only a limited number of instances where there are two
!                    11 l operating companies o2 the same holding company in one state.
i                          i 2
                            /So,Ihavenotspecificallyreviewedthattypeofcombination
()-
l 13
                          ,        in prior experience.
I'
                                                'MR. MESSER:  Can I assume from your answer then that 15 '
( the management combination study that has been conducted 16 by you and your associates at Theodore Barry is a unique l
1 I situation as far as your experience is, concerned?
i i
18 WITNESS WICKER:    Well, again, I think it is important 19 \
l to recognize that a utility company has certain functional 20 l c, areas and most electric utility companies function in f
21 P J fundamentally the same way in supplying electric service.
2, -l>'l So,.it is a unique situation, yes, but the elements involved 23                                              '
are, in fact, no, not significantly different than reviewing r\ ~)              24 '.''
(/                              the operations of any electric utility, which I have done in 250 the past.                                    ,
l COMMONWEAL TH REPCRTING COMPANY 5717 761 7150
                                  .                    .-.              =          . . . . - .    --    -.
 
r22    l 773 ,
i t
s,        t !                    MR. MESSER:    Again directing you to my question, s    /        ,
:          my question is:      is this the first time that you haca been i
3: involved in studying and recommending the combination of I
4i        management of utilities?
5                      WITNESS WICKER:    Yes, it is. I just would pick you ;
6          up on what I interpreted your statement to mean in the sense
                                                                                                      ?
7  i      of recommending.
i                                                                                  ,
8l  i                  We have concurred with the company's plans that they.
I 9l should proceed with it, but we did not recommend to them that 10          they should do this in the first instance.
i 11 i                    MR. MESSER:    Would you call an endorsement a 12 !        recommendation?                  ,
      ~
13 i WITNESS WICKER:    Well, I am not a linguist or an g  ,
I                                                                                I 14 l        accomplished English person; so, I am not sure that I could t
35 l        clearly differentiate between an endorsement and a recommenda-16          tion.
To me, a recommendation is something where          you would 17 l                                                      ,
i 18          propose something different than that which was in the l
19 l existing situation.
20                      In this instance, there was an existing situation 21 f which is that the company had proposed tG go ahead, and we 22 p endorsed that.      So, maybe perhaps I am being unnecessarily
                        ?
              '3 !
precise there, but I would see a small distinction between j        24 those two.                                                            lll 25                                      Would it be a fair assumption that
!                                      MR. MESSER:
I COMMONWEALTH REPORTING COMP ANY 717 761 7150
 
    ,.        .r23                                                                                                                                                    774 O~                            t      , TEsA endorses the proposals of the company in regard to the
;VL 2 [ management combination?
WITNESS WICKER:                        We feel that the proposal that the 3h company now has promises significant benefits to its 4l  i l                                5l Pennsylvania ratepayers.
l 6l:                                    We have also outlined in the report a series of                                                          i I
7f steps which we believe the company should and, since this 8l report is not absolutely current, may have been taken in order to l
91 ensure that the benefits of the combination are achieved,
                                        }
10 ;          and those recommendations are included in our report.
I 11 l                                    MR. MESSER:                You previously recommended by testimony j                                    h to the Commission or indicated your endorsement of the 12 [
13 :          proposal, haven' t you?
l 14                                      . WITNESS WICKER:                      Given that they perform the 15 l steps which we see necessary to achieve those benefits, then, 16            yes , we have.
i 17 !                                    MR. MESSER:              Now, do you con, sider that the report i
18            which has been submitted, or at.least that segment.of the 1
39            report that has been submitted in regard to the endorsement n
20 " of the management combination, was written and conducted in 21 l          a manner which is generally accepted la the management 22 consultant's field?
WITNESS WICKER:                        I take it we are. referring to the 23 ll O'"                          ''
                                            !)
r vore?
25[                                      MR. MESSER:              I am referring,to the report that was I
cOMMoNWCAl.7H REPORTING COMPANY +717' 791 7 8 50                                                  ,
l
                - _ _ ... _ . . -. .. ..                                  , _. . . _ . _ . . _ . .                                                                                  J
 
r24 775~'
i i
I i              l I              i l        introduced as, I believe, the Staff exhibit this morning.          h 2,                    WITNESS WICKER:    Yes; then I would say that the 3l answer is yes.
4                                    In the preparation and development of MR. MESSER:
5 the reports and recommendations contained in your section, 8        would it be fair for me to assume that in order for you to            i 7
reach your conclusions, you made a detailed investigation 8
into the facts contained in your reports?
8 WITNESS WICKER:    That is correct.
1 MR. MESSER:  What was it necessary for you to do in 11 i    order to secure that information?
l 12 WITNESS WICKER:    The" process which we went throug I' ! which is briefly described in the report, was to review the i
14 ,
proposal that the. company put forward at the request of our own 15 '      client, the Commission, and to analyze the organizational I
16 9 relationships that were presented in that plan, to evaluate 17 I i    the benefits that might come about and/or the disadvantages IS that might be contained in such a proposal, to assess the 19 I r extent to which the implementation was, in fact, a realistic l
            'O f and          achievable goal, and to review the company's plans for 21 communicating this proposal to its various publics.
22 i' MR. MESSER:    Did you conduct interviews in that 23 !'
regard?
L          24 1 i            WITNESS WICKER:    Yes, we did.
h i
25 MR. MESSER:    Did you make independent studies to COMMcNWEAt.TH REPORTING COMP ANY <717 7617130
 
r25        ,
77E
  . .    ..                  i i
i m                  1        determine how many employees would be affected by the O                        2l combination?
i                                                                                                    i i
3I                                  WITNESS WICKER:      I am not exactly clear as to,that              '
4        question, because, yes, we made independent studies and made                                  i 5        analyses and comparisons to other utilities to the best extent 6        that information was available, but when you introduce the l
7        element of employees affected, we did not look at' individuals.l 8        We did not look at pay scales or anything else that would be                                (
9, specifically related to individuals.                                                                t I
10 I                                What we looked at was what appeared to be the                      ,'
I                                                                                                  i n                                                                                                  .
11 ! required organizational configuration and what that would                                          j l                                                                                                  :
12 '      need.
C'                                                    MR. MESSER:  Would it be fair for me to assume -
13 j l
a4 l then that .you did not attempt to quantify the benefits of the 15 i      proposal?
i 16 l                              WITNESS WICKER:        No, I don't think I said that;                [
17i h that is not an entirely fair assumption.                                                          -
18                                MR. MESSER:    What did you say?
19 !                              WITNESS WICKER:        When you say " attempt to quantify a
20 " independently," we have not produced a separate statement of i
21        the benefits.
22 What we did was. we reviewed the documentation that 23 l the company had put together and satisfied ourselves that, I
24  i      recognizing that this is a proposal and that many things have 25        to be done, again some of which have been outlined in our I
COMMCNWEALTH REPORTING COMPANY 717 761 7150
          -  ,-m,m  -
                                    - - - - -  -. g-,-m--,mn                  , ,
w
 
r26      ;
                                                                                            '' 77 'i '
i f
I
      -        1i I
report, in order to turn this proposal into reality, we O    I i
2! satisfied ourselves that their proposal was, in fact, a                              !
reasonable one and that the benefits that they projected were 3]    ;
4              reasonable and achievable given that they took the steps that 5,
we have outlined.
6'                        MR. MESSER:  Can I understand from your answer then 7              that the information that you used in order to prepare your 8            endorsement and recemnendations in your preliminary report i
8            and in the final report, which is now as exhibit, was based 10              upon information furnished to you by GPU?
i
              "'                        WITNESS WICKER:    Largely so, yes.
I!                        MR. MESSER:    Mr. Wicker,  iftherewasnoquantitag i
              '3-            benefit to the ratepayers or the shareholders of any of these 1
I4              corporations, would you still recommend the management 15 f combination?
I6                        WITNESF WICKER:    Before I answer that specifically, l
17 l I think it is important to recognize that the benefits that 18 i have been quantified are those which relate entirely to people i
38! costs.
l O
I would anticipate that there may well be significant l
l 91 l'benefits which would be difficult to quantify, but which would l
!              22 i l                          [ hav,e an impact on the ccmbination.
                ,3
                ~
l              For example, the company's desire to improve or
    ^
(~          "!              to establish a center of excellence in Johnstown for the
                '3 3 !
generation' company would, I would expect, cause them to more j                                            ,
li Il l                          l b
C@MMNWEASTH REPoRTfNG CCMP ANY 777 761 79 5C
 
    .          .r27 778 I          efficiently maintain the plants that they would be responsible
[8                ,r
:        for; and that will have a financial benefit.
I 3l                    And in the areas of materials management and i
particularly in the area of fuels, a centralized coal I
5' procurement functiott would, I anticipate, provide significant 8
j        financial benefit; but if you are going to say that given that-I was sure that there was absolutely no benefit in doing it, would I do it, then, no, I wouldn't do it, but I am not so 8{
9 !
convinced.
10 MR. MESSER:  Now,cassuming a hypothetical, I am not 11 '
asking you if you are or you aren't convinced, . I believe what 12 il      you are telling me'is that if you could not quantify the l
OJ                  >>llbenefite then you would not recommenc the proposal; is that a q
!                    14 ;'
                          ;; fair statement?        ,
15 ''
WITNESS WICKER:    No, that is not a fair statement.
1 16 i' MR. MESSER:  Why don' t you state for me exactly what 17 l!
yyousaid?                                        ,
18 '
WITNESS WICKER:    I think there are qualitative and 19 fl quantitative benefits; and, necessarily, as a manager,            there 20 :i ll is both a tendency and an appropriateness in basing one's i
21 l' decision process on a combination of qualitative and i
                                . quantitative benefits.
23 h' ,
If there were no quantitative benefits, it is-O-                        q eo 181e en e cae au 11eative eenerie wou1d 8e te izio nt 25i enough that you would want to go ahead with a particular COMMONWEALTH RfPoRTING COMPANY e717 76171:50
 
r28      .                                                                            ,, 779, I
                !l        proposal.                                                                g 2                    In this case, I really can't hypothesize as to whethes 3, or not I would or would not,given that there were no 4ll quantitative benefits.                I have no idea on this.
5                    You are asking me to hypothesize about something 6          which -
7                    MR. MESSER:      I believe previously, you told me that 8l you would not recommend it if there was no quantitative 1
9
            ,      !      benefits.
i i
10 !                    WITNESS WICKER:        I said if there were not benefits.
II l                    MR. MESSER:      No benefits whatsoever?
i 12 l                    WITNESS WICKER:        If there were no benefits, i                                                                        then,e la l obviously, I wouldn' t recommend it.
MR. MESS,ER:      We wouldn' t be here if there were no l
l 15 l benefits, in your opinion?
i
              '                      WITNESS WICKER:        In my opinion, that would be true.
I 17 '
MR. MESSER:      What are the negative impacts upon 18 '! 'Fenelec as a result of the proposed merger,which you have 19 l indicated          you have. endorsed?
l il 20 !'
                      !!              WITNESS WICKER:        Excuse me for one moment.
              *1
              ~
(Witness perusing document.)
              ,,        s
                              .      MR. MORRISON:        I would object to that, Your Honor.
                      ;.l I think that that question assumes in the answer that there l              23 I
  ~
are negative benefits.
              's
              ' 1 MR. MESSER:      It is cross-examination.        He can tell me.
CCMMoNWEALTH REPCRTING COMPANY 7t7 761 7!50
 
r29                                                                                    784 l,
                !,                    JUDGE CASEY:        It is. I will permit the witness to 2          answer, if he considered both the pros and cons of any 3i recommendation that was made in the report.
4j                    MR. MORRISCN:        I don' t believe that to be the 5          question, though, Your Honor.          I think the question assumes l
6' that there are -- that is sort of a "have you stopped beating your wife" type of question.          It assumes that there are        -
7l l
8! negative benefits, and I don' t think that that has been 9          established.
i 10 l                    JUDGE CASEY:        Did he say " negative benefits"?
i i
11 l                    MR. MORRISON:        Yes. He said, "What are the i
12          negative benefits," or the negative impacts rather.
t JUDGE CASEY:        The negative impacts?
13 [
14 ,                    1Gt. MESSER:      Yes.                  -
15                      JUDGE CASEY:        I will permit the question; it is 16 i        cross-examination.
17- :                    If the witness says that there are none, then that 18 l        is an answer, and it will go on the record.              If he considered 19 { some negatives, I would like him to state what the necatives 20          are.
21 !                    WITNESS WICKER:        We did consider the negative l
22 l          impacts of it.      As I am sure you are aware, we met with 23          representatives of the Johnstown Area Regional Industries --
si        24 i        I believe that is the correct term--early on in our study to h
i 25        l elicit from them what their concerns were with regard to this e
i COMMoNWEALnt REPORTING COMPANY 717 7617 t 50 l                        I 1
 
r30 731' I      proposed combination, and I believe that that meeting took                    I 2      place on April 29, 1980.
3l                  We reviewed the points that they made and that was I
4      the removal cf some number of people from Johnstown would be 5      a potential negative impact on Johnstown and the potential 6      loss of the corporate headquarters would again appear to be a 7      potential negative impact on Johnstown.
s                  Our focus and our charge from our client, the PCC, 8
was to look at the implications for the State of Pennsylvania i
to        and not for any one group of people within the state.
II MR. MESSER:  In your evaluation, did you generate i
12 t      internally or from any other. source than JARI the considera I3        of negative impacts of this combination on either Met-Ed or
                  ~I4        Penelec service territories?
15 WITNESS WICKER:    In interviews with Penelec and 1
16 l Met-Ed management and in discussions with my colleagues , as I I
think one would expect as part of the , consulting process, we 18 attempted to identify what might be the negative impacts .and 19 l that you will kick those around to try and determine whether
                  'O i or not they were real or simply perceived negatives.
21 While you describe the moving of any number of
: people to those individuals, there is a significant and
                    '3 l
                    ~
i personal impact, and we could not determine any fundamental 24
  ~
j  flaw in the company's logic which would preclude going ahea
                    '5
                    ~
with this combination.                    ,
l i
COMMONWEALTH REPORTING OCMP ANY '717 761 7t SC
 
r31                                                                              782 :
j                                                                              !
j A          Il                    MR. MESSER:  Did you consider the financial aspect
'O-              i 2l of the merger in terms of the revolving credit agreement and i
3            the relative financial strength of the operating companies.          ,
4l independently?                                                                ,
5                      WITNESS WHEATON:    In this connection?
6                      MR. JOLLES:  Can I have the question read back? -
T                      -MR. MESSER:  I will restate it.                      -
8                      Mr. Wicker, I believe my question was related tot        ,
of the proposed management 9l whether you evaluated the impact i
combination on the financial viability of the three operating 10 l 11 companies -- the two operating companies.
12 I                      WITNESS WICKER:    Since the finance section was not      ,
13 i          specifically my responsibility, I think it would be more 14l appropriate, subject to Judge casey's agreement, to have                        '
l                    ;
I 15 l,        Mr. Wheaton answer that question.                                      !
:                                                                          e MR. MESSER:  Mr. Wheaton?
17 I
                      !                WITNESS WHEATON:    Could you repeatthe question for i
18 my benefit?
MR. MESSER:  My question was whether you evaluated
              'O-
              ~
q the impact of the combined management of Met-Ed and Penelec-I
              ~l l' in relation to the financial positions of the respective I
i e,        j
              ~~
is operating companies.
23                                                        First, I think it is
(                        L              WITNESS WHEATON: ' Certainly.
n; ;
                ~
important in terms of looking. at the proposed combination to
              ,3{, get an understanding of whether, in f,act, this was a proposed 1
COMMONWEAL.TH REPORTING COMPANY '71D 7617150 l
i l  -                .                    _                              _.
 
1 r32                                                                                  733 m
3[L merger or whatever.          It became very clear to us in terms of 9
2l!looking at that area that we were talking about a proposed nor financial implica-3l combination which had neither legal                                                  ,
4 tions involved.
5 Secondly, and very important, was.to take this 1
8                                                      As our report clearly in the context of the overall report.                                        l 7
l                                points out, one of the very real concerns that we had l
a throughout our study was the continuing financial viability                  ;
9
                    .      ;      of the GPU System.                                                            ,
10                    In our financial section of this report, as well as l
11 in the summary, we point out the potential snowballing effect j i
12 or domino effect of each operating company's invididual V                                                                                                      g 33 financial position.                                                    W, 14 So, in t,erms of our overall report, in terms of our !              ,
15 summary and how that was impacted in terms of the specific                    ,
l      review and analysis'and critique of the proposed combination, i
17 j'
                          -      we did take into consideration the fin,ancial implication.
IS MR. MC CLAREN:    Is it.Mr. Wicker's answer that he 19 i,    did not consider the financial implications in his review?
20 WITNESS WICKER:    The project team, if you will, is 21 l
                          .l      composed of people who have different strengths in different 22 l
                                . areas.
As a result of putting together this piece in the l                      23 l 24 l j  management combination, Iworkedwiththeteamoffiveotheg 25 j
consultants, one of which happens to be a Certified Public l
CoMMONWEAt.TH REPORTING CCMPANY #717+ 761 77 50 l
l --
      ~ ~e-- ~ ~      -
 
  ..      ,,  'r33    l 7M i
I i
O^  .-
                    '!            ^ccou=e  =t-    =a th e t      aoe i==1=aias ar whe coa                  tavoiv - =t-
                    ,l As part of that proc'ess, we looked to those' issues.
3[ I just do not feel myself qualified to comment in a                                        -
i                      .
4l professional way as to the implications from a financial 5! standpoint of this combination on such aspects as the 6
revolving credit agreement, but, yes, I was involved in thosa 7                                                                                            -
i                                discussions.
8l                        MR. MESSER:      Have you ever been employed by a utility t
9 in any capacity?
10 'i.                      WITNESS WICKER:          No, I have not.
11 i                                        Have you ever participated in a MR. MESSER:
l'~
consultant's capacity in running or operating a utility?
Op              13 No, I have not.
i                  WITNESS WICKER:
                                              'MR. MESS,ER:    It is my understanding from reading
                  *' l    .
15 i' the report and the other documents that we have been furnished 16
* with, Mr. Wicker, that the initial proposal in regard to the r
17 l o
combination of management was first brought to your attention 18 ll sometime in December, I believe, December 17 or thereabouts 19 !
l
                            !    of 1979; is that correct?
20 WITNESS WICKER:          My understanding of this timing, if 21 !
l    you will, of these various discussions is that we started our 1
22 L y management audit on December 17.                                    .
                    ,, 1
                    ~~
I believe at that time, some members of our fir:r, of 24 !
O:v                        o which I was not one, met with Mr. Kuhns who is the Chairman ti 25 i''
t of GPU.        ,.
COMMoNWEAI.7M REPORTING COMPANY  717, 761 7150
_._.... % ~_                    . . . ..      . - .          _ . _
 
l l
r34 783
* g,        1                  In that meeting, it is my understanding that Mr.              h 2        Kuhns raised the possibility.of restructuring in some way the 3        Pennsylvania operation.                                                .
4                  The first, if you will, formal announcement that we 5        had of that was, in fact, I believe, January 17 when Mr. Kuhns i
6      testified in front of the commission with regard to the                    :
I 7      company's future plans.
8                  So, that really, at least to the best of my 9      knowledge, the January 17 statement was the first knowledge to        I had dire'ctly that the company had any plans in this directiona 11 '                JUDGE CASEY:        Mr. Messer, do you mind if I interrupt 12 ( at this point?            I think what is going to happen, we may wand 13        all over the lot as to when Theodore Barry and. Associates' l          14      involvement first began, and I would like, for the sake of 15 ,! clarity in the record and my own boggled mind, to try to get i
16 l      Some continuity into this thing.
17                  I would like, I guess, to direct a question to 18        Mr. Wheaton since he is the ranking official on the audit 19        team.
20  I Based on your own recollection, when was Theodore 1
21        Barry and Associates
* involvement in this audit; when did it i
22 l commence?
23 f                WITNESS WHEATON:          The audit process -- I will go 1
24        back to the origins to put things in its proper context.
20                  JUDGE CASEY :        The origins, yes.
e i                    comuonweat.ru arpopuso coupany nr 7st.nse i
 
  . .    . , r3 5                                                                                              786_g I
                            '
* r==ss waz^ro==          ^usu e or 1979      ta    ==ree= of O 'c                                                                    z 2          Audits sent a request to various consulting firms to determine 3          which management audit they might be interested in proposing                -
4 on doing, and we had a choice of three.
5                      JUDGE'CASEY:    The Commission asked for proposals 6          from various audit firms?
l 7                                            First, they asked which audits '
WITNESS WHEATON:
a would you like to propose on.        They,gave you a list of three, 8
                        .        !~and you could select one of those three.
I IO                                        What was the date when that contact JUDGE CASEY:
II was.made?
12 WITNESS WHEATON:    I believe that was sometime in 33 ,
l      August.
                            "I    l                  ~ JUDGE CASEY:  In August of 19797 I                                                        We responded to that
* WITNESS WHEATON:    Of~'79.
t 16 :
request saying that we would be interested in proposing on i
17 !
I      the audit of Met-Ed and Penelec.              .
18 ;
j                Subsequent to that - .and I would gather in to l        September of 1979 - the Bureau of Audits .sent us a formal                    j ll.
i I
                          'O
                          ~
request for proposal, which we responded to on or about l
21 November 1, 1979.                                                              i I                                                                                  I 22 '
[.
                                            -        JUDGE CASEY:  Did the Bureau of Audits' communicatioli
* I 23 '
i that was sent to you, did it contain any specific instructions l 5
                                    !    or did it describe the scope and the purpose of the audit;. do 25 l you recall?                                ,
l i
COMMONWEAL.TH REPORTING COMPANY' :717 761-7150
                                    !            v,          _.          _
 
r36                                                                          .. '787 I
i
  '      I                                        Yes, it did.      I think I may have WITNESS WHEATON:                                              ;
s.
2 i      copy of that RFP with me, because-it addressed some specific 3
issues that they expected to raise during the audit.
4 By the way, the letter, their RFP went out i
5i        September 25, 1979.
l            h 6                                  For the record, what is an "RFP"?
JUDGE CAST 3:                                              :
WITNESS WHEATON:    A request for proposal; an RFP is a
an anachronism taking the first initial of each of those 8
three words.
10 JUDGE CASEY:  That is industry jargon?
t,'ll                WITNESS WHEATON:    That is right.      You will have to 1, I bring us back on that.            -
g 13 In that report, the Bureau of Audits identified 14 !
some specific objectives, and let me just recap what those 15 !
              ;    are.
16 One, the consultant will review prior management 17 '
              ;    studies that have been done of the GPU, Pennsylvania companies 18 so that the company would use those prior studies as a starting 19 point; and those studies included the Booz-Allen-Hamilton 20 ;
management audit, which the company had undertaken a couple i
21 l                ! of years prior to that.
        ~~
The second major issue was a review of the 23
                -  financial condition of Met-Ed/Penelec/GPU; and there were several specific things dealing with the Three Mile Island 25Y l
accident.                                ,
t I                COMMONWEAL.TH REPOA? LNG COMP ANY 717 7617'YO k
 
r37                i 788 -        1 r-I I                              i
    ^                      l                        The third was a review of the company's efforts to 2            find economical replacement power.
                        .        i
(                            3                        Fourth was the consultant was to examine the 4            management actions and decisions involved in the order to 5            make a determination as to the adequacy of the present 8            management of the Met-Ed/Penelec/GPU;~and this included the 7            construction and maintenance of TMI-2, TMI-1, reviewing the i
8            company's actions during the PUC hearings and the Commission                    -
l 9
                          ,        ,      order.
I 10 l                      The last specific item that was requested in that Il i request for proposal was to review the-PUC's Bureau of f
      -                    12! ! Consumer Services, the records of the specific companies Oo                        13 with respect to'that.                                                            l "I                        These were specific issues.      The request for                      i l
l l
15 proposal also indicated that they wanted a full outline of is !            the scope of audit that the consultant would propose            ;.
17 -                      In that context -- and I don't have the specific j
18 l date -- but subsequent to this request for proposal going 19 out, there was a formal bidders' conference which was held 20 '            here in Harrisburg at which prospective bidders were asked to '
                            'l
                            ~
come to that bidders' conference.
i    .
As it turned out, I did not attend it; Mr. Wicker 23 t happened to attend part of that bidders' conference to get
                              '                                                              aee eue co==1    ioa =
O(                                        ore decei1ee tafor eeto=    ita re eeot to 25 needs.*. heir interests were so that we,could respond to the CoMMONWEAt.TH REFORTING COMPANY 7 t7 761 -7150
                                                          ,--m            ,  -w-    -e
 
r38              .
                                                                                                  . . 78!f, ,
l i
3! request for proposal in a responsive manner.                                    g
                      ,1
                      *I                  JUDGE CASEY:  When was that bidders' conference, if, li 3f you can recall?
I t-4 WITNESS WICKER:    I f' you want a specific date, I              i 5f could get it.
l 8                                        I have it; October 3, 1979.
WITNESS WHEATON:
7 JUDGE CASEY:  Did you submi t an actual proposal at a
that time?
8
                    -                      WITNESS WHEATON:    We submitted an actual proposal, I
I" and I believe the date of our proposal was November 1, 1979.                  ,
l 11 Subsequent to that, we were informed by the Bureau                :
l    -
12 of Audits that we were one of their finalists to be considered
* 13 to perform the study.                                                        I 14
                            -              'In the context of their selection process, we were                :
I 15 '
asked to come to Harrisburg to make a presentation with 16
:  respect to our proposal.
17 As a matter of course on November 19, 1979, there 18 were four or five of our key staff who would be involved in                    !
19
                            . that study who came and made a presentation to a Selection 20 l
Committee.
21 !
l The Selection Committee was directed, I believe -
22 l    ,
and-I am not exactly sure how this works -- but it was directed 23 by the Bureau of Audits that there were representatives from
    ~
other divisions of the Commission who were on that Selectic 25 Committee and who were involved in pagt of the discussions and l                COMMONWEAL.TH REPORTING COMP ANY #717' 751 7150
  -.      -..- - -.        .I                            .                        _                    __
 
  ..    .. r39                                                                                790 i
      ,          It        the reviews; and the principal things that we were asked 2, about in that interview were our qualifications, the specific                  ,
approach that we would take and, because of prime interest at l 3l 4 !        that time, it was how we were going to approach some of the 1
5          financial issues which were unprecedented in terms of how they 6          needed to be. faced..
7                    JUDGE CASEY:      On that particular date or occasion, 8          was the PUC Selection Committee hearing a number of presenta-9[ tions or had that day been set aside for Theodore Barry and                      ;
i 10      l Associates?
11 '                  WITNESS WHEATON:      We had half a day, and it is my 12 i
                      !recollectionthattheyweregoingtoseeanotherconsultant O-              13 I        in the afternoon.      We were reviewed in the morning, and I i'
14          think that was approximately a two-hour review session, 10:00 15          to 12:00, approximately.
i                                                                                l 16                    JUDGE CASEY:      This was after you had already                !
i 17          submitted your written proposal which described how you would 18          go about performing the audit and who would be involved in                ,
19          the audit team and what the cost of that effort would be; is              l q
l 20 '        that correct?                                                              ,
l 21                    WITNESS WHEATON:      Correct.-  If you will recall, the 22          date that we submitted that proposal, which was, I believe, F
23          November 1, that meant that the , people from the Commission O-              24!hadhadtwotothreewee*stoheveanoveortuntertareview 25
                          ! the proposals; and so they did have a, number of specific CoMMoNWEAI.TH REPoR7tNG COMPANY :7171 768 7150
 
I
                                                                                              , , 7 9.1, ,
r40                                                                                  .
I' 1
p questions that they were concerned with in terms of our                              g l
2 addressing them.
Sometime subsequent to November 19 - and I think 3l 4litwasprobablybeforeDecember1--wewereinformedbythe 3
1 t        Bureau of Audits that we had been selected to perform the i                                                                                        !
8l management study of Penelec/ Met'Ed/GRU.                                                  ,!
f                                                                                                          i 7                      Subsequent to that, I believe -- and              this is an 8
approximation--the three of us came to Harrisburg to discuss
            'i          some of the specifics and to make final arrangements as to a to          contract,which was ultimately signed,in terms of going over 11 various terms of that situation.                                                  !
12 i                    JUDGE CASEY:    You say "the three of us;" your 13          associates that are here with you today?
O I4                      WITNESS WEEATON:    No; we had -- I should put that i
15 !          in context. As Mr. Wicker has indicated, there were some six 16 I people who were involved in the review of the management operations.                                  .
18 I am guessing on this,      In terms of our overall i
19 l'                there may have been as many as 12 to 14 consultants who study,
            ~0 9
were utilized in various aspects of this study based on their 21 l professional backgrounds and experience.
22                      In the meeting on or around December 12, there was l
23
                      !  a letter that was issued subsequent to that particular 24 meeting; and that letter is dated December 14 which was sen W 25 to a Mr. Phil Doherty, who is a Vice-President of our firm and CCMMONWCALTH REPORTING compt.NY 4717 761 7? $O
 
Ir53                                                                                                                      792
    ]                        1  who is my boss, if you will, and was actually with me at
,                            2  the time of the discussion that we had on December 12; but.
i 3  Mr. Glenn Bartron had been designated as the project
!                            4  officer for this proposed audit.
5                JUDGE CASEY:    Who is he?
s                W I T N E S S W H E A T O N :" He is'the director of the 7  management audit section of the Bureau of Audits and a  reports directly.to John Dial.
                          ,9                  JUDGE CASEY:    He works for the. director,' John Dial;.
10    is that correct?
11                WITNESS WHEATON:      His. responsibility on a full-time 12    basis is all of the management" audit functions of the On                        13    Commissioners.
14                As I understand it, Mr. Dial has other responsibili-15  ties, other audi*: responsibilities, besides the management is    audit fsnction, and Ifr.'Bartron is responsible for the 17  maruagement audit specifics.                      ,                  ,
l 18                JUDGE 'CASEY:    Did Mr. Bartron prepare that letter 19    that you just referred to?
20                WITNESS WHEATON:      Yes, and in that let:ter -- and 21  I think this is a very important aspect of our entire study --
22    the ,GPU situation,s' inca March 28, 1979 has been in a constant 23  state of flux.
      ~)                    24                JUDGE CASEY:    You don't have to whisper.                        We are
                                      .-          . m.c = . :., g g .
                                                                                      .u.    . = ;- - - : . : -= . - -
l                            25  all aw'are of it.'                              i COMMONWEALTH REPORTING COMPANY (7171 791 7150
 
1r54                                                                                      793 WITNESS WHEATON:  And, by the way, it was very 3
2 important in the context of t;te discussions that we had back in the November meeting.      It was:  how are we going 3
to be able..t'o be -flexible enough to meet what could be a                f 4
                            'S very changing situation?
As we all know,.as we are.here today,'the situation 7
continues to change daily, so I think we were able to              .
a sah.isfytheBureusofAuditssectiontotheeffectthat                    "
g    we had not only the various capabilities to perform a 10 study like this, but we also would be'able to deal effectively it with the flexibility that might be required.                              ,
12 JUDGE CASEY:  Watild you tell me, Mr. Wheaton, what 13    was the basis thrust of that letter?      Was it instructional 14 in some way?
15                . WITNESS WHEATON:  Yes. Let me just read portions 16      of it. The first sentence says, "This is to confirm our 17 understanding of the issues requiring early review as gg      discussed in our meeting of December 12 between TB&A and 19 the PUC audit staff and myself," and they refer back to the 20      original request for proposal and also to our proposal.
l                            21            ,
Then the charge was, " Specific topics to.be 22 l
addressed in detail.for pr.esentation on the record before 23 the Commission not later than February 1st, 1980 are a
                            '24      review of the financial viability and financial planning of 25      Met-Ed," and there are several subtopics under there.
l
_ __ _ _ _ _ _ _ ~ _ . _ . _ _ .                  AN FICMTENB RPANY O1M 7617130
 
i I
1r55                                                                          794
  ]i              1 2
Secondly, "Are. t.here corporate organization changes which would improve Met-Ed/GPU's ability to 3
operate nuclear plants and to meet-its cash and earnings 4  needs?"'
8 JUDGE CASEY:    Was.that observation injected for~
6  the first time in that letter, or w'a s that included 7  generally in the request for proposal 'that you had received?
8 WITNESS WHEATON:      In a general manner, it would 8
have been implied in terms of the request for proposal, and-'
to  I would have to look back because in every management
                                                                            ~
11  audit that I have been involved in, which have ieen almost p        12  too numerous to count at this' stage, there has been O$            13 a request to look at organization structures and to look i                14 at cost savings so..that they eventually would not only is  benefit the companies but also benefit ratepayers, and so i
18 that was implicit in the overa11' situation,.
i 17 l                              In our specific proposal, we.would have talked.
  '            18 specifically about looking at various organizational issues, I8 and so this was the first time that it was elicited as a 20 specific objective by the Commission.
21            -
There were two or three other major points indicated 22  in that letter, and the th'ird one was, "Has GPU/ Met-Ed 23                                                                                "
explored all sources of capital and means to reduce cash needs?
24 And, fourth, is Met-Ed/GPU's manapr.nt . adequately preparing
                '5 and planning for events during the next four years? "
COMMONWEAL.Tl+ REPORTING COMPANY (7171 761 7150
 
2-  - pl 795 Y
t g            Obviously, questions, if there were any organizatioj      )
2 al plans involved, we would be interested in looking at those.
3            JUDGE CASEY:  That letter highlighted the fact that l
4 there was an ongoing investigation in progress, which we
(                    3 referred to as I-308, using the last.three numbers of the I
s Commission docket number; and there.was some reference to the l
7 time in February as being significant or crucial.                f.
t' a            Ware you supposed to prepare something and be ready
                ,9    to appear in February in connection with those hearings?
I 10              WITNESS WHEATON:  That is right.
11              JUDGE CASEY:  February of.19.80.
12            WITNESS WHEATON:  Yes. The question was -- and thi
('
13 had been inplicit in all of our discussions with I-308 going
\
14 on -- the Commission was going to need some external assessments 15  that might be helpful in terms of their deliberations, and j                  is  the concern was: would any mana%d. audit firm be able to 17  provide that sort of input?              ,
la            We had agreed that we would, iri fact, do that, and 19  We took an extraordinary step in this particular situation of 20  having as part of our team an independent financial consultant, 21  Mr. Thomas E. Dewey, Jr. , wilo, in fact, assisted us, in 22  , preparing for that February presentation.
23            JUDGE CASEY:  It seems to me that I have heard that I          ' 24  name before. That was Thomas E. Dewey, Jr. for the benefit
                  .25  those in the back o f the room that per, haps didn't hear that.
 
  ..p2,,                                                                ;                    795 Q          -    1                  Let's get over that date.          Take me to.the next
                  .2      development as far as you are concerned in the audit process.
3    When wara you notified?        You had already been notified that 4      you were the successful bidder.                                      -
5                  WITNESS MHEATON:      In terms of the actual contract'
                                                          '                                    ~
6      being' signed?
7                  JUDGE CASEY:    There was, in fact, a writt'en contract?
8                  WITNESS WHEATON:      Yes.
                -  9                  JUDGE CASEY:    Is that a contract prepared by your I
10      company?                                                    ,
                  '1 1                    WITNESS WHEATON:      No. The contract, I believe, in
      /^          12      general was one that is used- by-the Bui eau of Audits staff
        ~)
13      for all of their audits.        We had previously performed an audit 14      of the. Pennsylvania Gas.and Water Company, so we were familiar, is      with the kind of contractual arrangement of the Pennsylvania 16      Bureau of Audits of the Commission.                .
1 i
17                  So as I look at the dates on.the contract that I l
18      have before me, this was something that was happening as soon 19      as the commission approved the selection of the consultant.
20                  I see the formal date of the Commission's approval 21      was 5cvember 29, with an . effective date of starting the 22      . contract being December 1"/.            -
23                Then the particular dates tha't that contract was          .
OO 24      siened 1ater -- Taeodore Baery and Associaees ended og sienine 25      it on Decembey 21. The Metropolitan Etiison Company actually
    }, . r l  1, '; _
coMMoNWEAI.TH REPORTING COMPANY (717} 761 715o
 
P'3                                                                                        797 1
l I  signed it on December 4, and December 7, because both Met-Ed 2  and Penelee signed it.          The Service Corporation signed it on 3  December 10, and the Secretary of the commission signed iti on
    ~
4  December 4th.
5                So there was an agreement among the parties, and '
6  there were different dates for signing that, so that clearly 7  established the effective date of the contract being on                      -
8  De'cember 17.
3 9                JUDGE CASEY:    The date when'the audit was supposed
              '            /                                                            '    ''
10  to begin undar the terms of the contract.                  . . .
l l
11
:Is there aitything else of7 significance, in your 12 judgment, about that contract which had any effect on your ~ g 13  conduct of the audit?
14                WITNESS.WHEATON:      No, I think --
15                JUDGE CASEY:      Is it a boilerplate, routine type of 16  contract which a consultant would sign?
17                WITNESS WEEATON:      It is very similar - this. contract l
18  was not -- it is similar to the , contract used with the Nek York 19  State Commission, which we have done two audits for.
20                The contracts are different -- and it should be 21  pointed out since this is quite important in understanding --
22  ,in the f act that it is a three-party contract.
23                It was three-pary in the sense that the ' client is
  'M              24  clearly, from our perspective, the Bureau of Audits, and it f5 is spelled out in terms of their request for proposal and in commonwat.rH mrPonnNa COMPANY #7tM 7617190                      [
 
l
        , P4      7, 793l
            ~
terms of the contract that they have ultimate responsibility-O t
                          .                          2  to determine the scope.
3                    They have monitoring responsibilities, and we have 4  in that context reporting responsibilities to them.
5                    JUDGE CASEY:              I an going to ask you to try to keep a  your answers as brief' as possible unless you think that same-1  thing must go on the record to properly explain your position
                                                                                                                              ~ '
a  in the matter.                                                                                      .
9                    But I take it on the audit, the kick-off date, which
                                              ~                /
10    was mentioned in the contract, was December'17: is that right?
11                      WITNESS WHEATON:              That is right.
l                                                    12                    JUDGE CASEY:              And what was the first step that w) 13  occurred on December 177 14                    WITNESS WHEATON:              The first step was a meeting in 15  the morning which was in Reading, Pennsylvania, and it started 16  about 10:00 a.m., and my recollection is that there were 20 17  or 30 executives of the three companies,of GPU .that were i                                                    18  impacted; and by that I mean the, Metropolitan Edison Company, 19  Penelec and the Service Corporation'.
20                      Subsequent to that meetinig -- 'we had. some five or six 1
21  of our staff there, and we made a presentation in terms of l
!                                                    22  ,tell;i.ng who we are,: what the purpose of the audit was as we 23 understood it, ahd how we expected to approach the study.
(
Q                                          '24                    JUDGE CASEY:              Was Mr. Kuhns, the ranking official 25  in the GPU system, the Chairman of the, Board, present at that COMMONWEALTH REPCftTING COMPANY (7171 761 7150
  - - ,        _ ~ . . . - _ _ . _ , , ._-                                . . _ . . ~ . . . _ .                .,. . -._..__
 
l
                                                                                      ,799  .
p5 1
I  Reading meeting?                                                      {    ll 2              WITNESS WHEATON:    Yes, he was.
3              JUDGE CASEY:    Who from the Pennsylvania Public 4  Utility Commission attended that meeting?
5              WITNESS WHEATON:    Paul Foster, John Dial and Glanzr 6  Bartron.
7              JUDGE CASEY:    And the representatives from your 8
firm that attended?
            '    8 WITNESS WHEATON:    I was the ranking person there
                          /                                                            -
10 responsible for it.      Mr. Wicker was there, Dr. Parente, Dr.
II  Bord, James Hogan, andINeil Szabo.
(
12              JUDGE CASEY:  Do you recall whether the subject of          I 13  the proposed management combination was brought up at the 14  December.. l'7 meeting?
WITNESS WHEATON:    Not that I am aware of in the l
l 18 morning meeting.      Subsequent to the morning meeting -- and
                                                                      ,                        I i
i 17  this had been prearranged with the company to maximize the i
i t
18  utilization of their time -- ~. interviews with-key executives          .I i
I8  were, in fact, set up for the afternoon, and.our audit team 20  effectively split up and interviewed some of the executives.
In that context, in interviews that day that I had'with Mr. Kuhns the subject of a proposed ccmbination did 23 come up.
JUDGE CASEY:
Was Mr. John Dial, the Director of h .
i Bureau of Audits for the PUC, present'during the interview?
COMMONWEALTH REPORTING COMPANY 17171 761-7150
 
  '        pS                                                                ,
800 1            WITNESS WHEATON:          The; meeting with Mr. Kuhns; yes,
                ,2  he was.                .
l 3              JUDGE CASEY:          That is three people.      Did anyone
                                                                ~
4  else attend that interview?
5              Nancy Bord?
6              WITNESS WHEATONi'          She certainly would have been 7  there, and I am not sure who else.
8              JUDGE CASEY:          Jim Hogan?
(
l              . 9              WITNESS WHEATON:          Jim Hogan would have been there, lo  yes.
11              JUDGE CASEY~:        Paul Foster, who apparently is an j
12  employee working for John Dial;,was he present at the meeting?
. O(n l                13              WITNESS WHEATON:          I believe so.
14              -JUDGE CASEY:          I am going to ask you one more 15  question, and I apologize to fir. Messer, and I then I will IS  turn the cross-examination back.            I may have some questions 17  later.                                              ,
18              Mr. Kuhns prepared an. internal memorandum to his 19    company, to the file and to certain key executives on December 20    21, wherein he      attempted to describe.the meeting or the 21    interview with him that lasted approximately two hours, and l
1 22  ,he has summarized a number of points.
I i                23              I will show you this except my copy is marked up 24  considerably.      In about 15 points he attempts to give a 25    briefing or a critique on what occurred at that meeting, what
  *k*'.'.,,..
          '                              COMMoNWEALTM REPORTING COMPANY (717) 761 7130
                                  - - -        - ~ -                --
l
 
                                                          -                      ..      o, p7                                                                                  801 I  I 1  the statements and expressions of interest were by the various 2  par, ties.
3              Point number two; he had the following to say, 4  " Great interest was expressed in considering the combination 5  of our two Pennsylvania operating companies.          Perry Wheaton 6  and John Dial suggested stirongly that we explore with tham 7  on a cooperative basis the possibilities of such a move, s  indicating that it could be one of the most important sugges-
      . 9  tions to come out of their audit."
10                Do you agree with that characterization of what 11    the exchange of expressions among the three of you was, that 12  is yourself, Perry Wheaton, John Dial, head of the PUC                    lll 9
13  Bureau of Audits, and Mr. Kuhns, Chairman of the Board?
14              WITNESS t,HEATON:
i        Maybe it would be best if I would 15  try to recollect that portion of the discussion from my own la  memory.                                        .
17              I am not sure that I disagree with what he said,,
18  but I think my perception may be somewhat different.            The l
18  question -- and I think it was probably initiated by myself                  .
20    in terms of what plans does the company have in terms of 21 pursuing any organizational changes that are in the wind, and 22  .what are some of the steps -- and I think :tr. Kuhns would have indicated that one of the things that they were at leas
  ~
23 24  considering was a potential combination of the Pennsylvania                  i operating Companies.                    #
l l
I COMMONWEALTHEPORTING COMPANY (7175 761-7150                  '
 
  , p8          ..
802
                                  .                                                ~
1                    That tied in with discussions in terms of, at 2    least if my memory has it.-- with the bad connotation of the 3    term " Met-Ed," which at that point in time, dnd I think still 4    does, had a very negative implication, not only here but 5    throughout.                                  .
8                      Mr. Kuhns had indicated that at that point in time 7    the firm that GPU had considered and was considering the              ,
8 possibility of bringing in, Booz-Allen-Hamilton, to look at 8    the consolidation - or the proposed consolidation -- one of 10        the things that evolved out of that conversation with the
                                                                                          ~
11        three of us was that the GPU at that point in time was
    ,                  12      rapidly becoming -- and is still              becoming - one of the most O'                    13      studied electric utilities in history.
I4                        i'here was concern on the part of all of the parties 15 there that having someone else looking at the aspects would 18                                                            In that context, I again result in potential duplication.
17 think it was suggested that at least there be some thought.to 1
la      seeing if the management audit of Penelec/ Met-Ed might, in I8      effect, address some of the issues with respect to a proposed i
20        combination, if that was something that the company was going 21 to go ahead with.
22
                                                                    ~
e            Our concerns -- and I think that pretty much l
2 summarizes at least my perception of the comments with that --
L O>                      ''
it w      a1 o eereed et that ee e , or            e ie      t 1 ehia* u=aer-25 stood, that in all probability, although it had not been said COMMONWEALTH REPORTIriG COMPANY (71M 7817150
 
P9                                                                              803 I
I  specifically, TB&A would be required to submit . testimony 2  with respect to the I-308 hearings on the financial condition 3  of the company, which was a real strong certainty at that i
i  point in time. It was an overriding issue on everything that 5  was beind done up to February 1 with respect to the audit,'      ~
6  and my specific instructions to our audit team was to look at, 7  in'effect, where significant cost savings might be obtained'.
8              In that context at that stage, Mr. Wicker, who maybe
              . 8  spent minimal time    -- up to ten days at most prior to the 10  February 1 time -- his time was spent in getting a quick look 11  at the operations at Penelec/ Met-Ed to' see if there were
      )
12 significant cost savings that.could provide cash fast.
                                                      .                                    h 13              His findings were that there really were none at l
14  that stage'that could be accomplished immediately, so in terms 15  of any other discussions with respect to the proposed 16  combination, they were held in abeyance'.    ,
17'              It was part of our audit process that we were given 18  the direction in terms of where we should focus, and the 18  canagement audit group had not given us specific focus in 20  terms of reviewing the proposed combination.
21              JUDGE CASEY:  You have explained to me what your 22  . thinking was on the occasion of that interview with Mr. Kuhns, 23  but perhaps you missed the import of my question, and I will 24 try to be a little more direct.
25              I may be ignorant of the ordinary audit function, but l
 
1
    . .p10 . .                                                                                                                                                                  804 O,                                      I mv ==aer t aias i= ta e                                  9 1 1=        i 91                ate 9 re=== 4 br 2            an auditor, forgetiting whether the auditor happens to be 3            the management consultant or not, you go in and you look at 4            the present situation and review the past situation, and then s            you try to come up with some objective findings; whether it
                                                                                            ~
8          portrays a dismal picture,' a good picture, a promising picture, 7          but that is the extent of it.
s                                        Now a management consultant getting into the' picture, 8
                                  -                  you apparently, both yourself and' John Dial, expressed rome 10            enthusiasm for including a future proposal, not only including 11              it but highlighting it in your Theodore Bat y and Associates 12            report, which is known as a management combination agreement.
O'                                    13 It says that you would like to work with the l'
company on'a cooperative basis, so are you going from the I3 standpoint of a plain, objective audit to a report where 16
                                                      .you are superimposing your judgments and your recommendations 17 on something that the company may have. originated or planned, is but is only in the rudimentart stages?
I8                                        Do you follow me?
20                                                                                  I will try to answer the WITNESS WHEATOU:                Yes.
21 question.                  The management audit process is one of looking a*
22          . things prospectively, and 'there are two types of management 23 audits that I have been involved in personally.
            ~.
            ,,                            24 One of those are the retrospective type of management 25 audit, which looks back in terms of say the Salem project that c
l
                                                                                        ..""*"  "3              """"* c "'^ "Y                    '7 ' 7' 7 ' 7 ' '*
i
 
805 pil 1
I had indicated that I had testified on; it was axactly that.
I 2                    We looked back at the practices that were used and 3  then made a determination as to whether those were effective 4  mechanisms that had been used and whether there were practices.
5  that could have been. handled better.
6                    In the prospective audit, which is what we were 7  involved in here --
8                    JUDGE CASEY:    Maybe I can save you same of your
            . 9  explanation.
10                    In the final paragraph of Mr. Kuhn's memo dated 11    December 21, 1979        a'it probably went. to the file and eight
(          12    corporate executives within the GPU system -- he had this              lll 13    to say, and this is not a numbered paragraph, " Perry Wheaton 14    mentioned that this audit was not going to be the usual 15    management audit, that so much of the more typical results l              18    had been gained from the Booz-Allen effort, and that the 17    Barry effort would ha        ~a-a d4*=cted to, specific issues looking l              18    to the future.          Nevertheless, some of those areas might be 19    reopened if they felt it necessary.          Repeated reference to 20    Stes. McClaren, PUC Assistant Counsel, underlines his importance 21    in this whole audit activity."
22            .
That last statement has nothing to do with your 1
23    outlook on what the audit would be, how you perceived the G,-
24    audit.
l Would you agree with Mr. Kuhns' assessment that the
              ~
23 e                                                                                            !
  .                _      __  _ _ _    -__                                                    e
 
  .. p12..                                                                                                                ' 806 l                                                                                                                          .
;O ^                        1  audit, in descrimine your view of the audie, what you must 2  have said to him?
                                    ~
3                  WITNESS WHEATON:          We certainly knew that this audit 4  was going to require a great deal more flexibility in terms 5  of what we looked at and what our final report might and up -
6  being.                      ,
7                  There is no question but that we looked at this one a  as a different sort c,f an audit, different in this sense,'that
                        . 9 it was going to be focused more likely on specific issues, i.e.
10  the financial viability issue, and, subsequently, as we found 11  out, the proposed merger and otir rationale for being here....                                  .
12    .            In that context, there was nothing that we were
            =
13  going to do any differently in terms of how we went through 14  our audit &pproach.and audit methodology.                That means to say 15  that when wc looked, if we had gone into any other company 16  to do a management audit and they were proposing a major 17  merger or a combination,at that point in time we would 'have 18  gone through the exact process that we have in this study.
19                  The only difference here was'that the Commission 20  -- in        Pennsylvania, by the way, the Bureau of Audits has 21  been doing this in other audits, identifying specific issues 22  ,that they would like to ha've addressed, simply because their 23  interest is to get the maximum bang out of the audit dollars                                      -
Os;      /
that they can; and in this case they had a case where the 25  company had spent close to S1 million on the Booz-Allen-i COMMONWEAL.TM REPORTING COMPANY (7171 791 7150 . . . _ _ . . , _ .
 
pl3 807 I  )
1    Hamilton Report two years ago, so they were very cost-consciot 2    and concerned that the ratepayers get the maximum bang for 3    the dollar.
4                JUDGE CASEY:    My only observation - and by the way, 5    the memo that I referred to was one of'three in a group of a    typewritten papers which have already been identified in this 7    record as JARI Exhibit Number 2, for purposes of identification .
8                The final point is that wnen you do something like
              . 9  that, if you are looking at a proposed merger or major change 10    in the management structure prospectively, do you cease to 11    become an independent auditor at that point and become~a 12    partner in a joint effort or. combined effort to produce a
                                                        .                                    ,g 13    result known as      a  management combination team?
14                WITNESS WHEATON:    Not in my perception at all.
15                JUDGE CASEY:    Not in your perception.
I 16                WITNESS WHEATON:    Not at all. We had a responsibility 17    to our client, and our client in this gase was.the Bureau of 18    Audits, and we clearly held out all along that our responsi-18    bility was to come up with an independent objective assessnent 20    of what the issues were that the Bureau of Audits might have 21 identified for us to look into.
l 22        .      In that context,' t,here is absolutely no way that i
23    we could, in effect, sacrifice our independence and objectivi              ,
l
      ,          24    and that was very clear in the case of I-308, as an example.
25                It was clear that we had to'come in and provide the i
COMMONWEALTH REPORTING COMPANY (7171 731 7130
 
  -. ._.                    . - -  _ -            . _ -  -    ._.        _ _ _  - . _ - _ _      __          .      . _ _ _ _ _ _ =-
, ..                      ..                e                                                                5 pl4'      ,'                                                                    p'.i                              J808.
3 10 --
1                    ,
1 Commission with a separate and independent assessment, and 2  we looked at our role throughout the management audit study 3  that we conducted' here as fitting into thati context.
                                                +                  JUDGE CASEY:                You were aware from the very inception j
1 5  that un' der the PUC policy and regu ations that the utility
                                                                                                            ~
6  being* audited would have to pay your costs of the audit?
7                  WITIESS tfEEATON: This is the normal process in the
'                                                8  three northeastern states, Connecticut, New York and Pennsyl-
                                          -      8 vania, that have ongoing management audit programs; and the -
18 Pennsylvania procedure is consistent with those in the other 11  two' states; and we have performed' audits in these other two 12  states, and we are quite welL aware of that.
I3                    JUDGE CASEY:                I am not suggesting that there is
                                              "    anything.. irregular.about it.                    The practice does not have to 15 be defended.            I just wanted to have it clear in the record 18 what.the relationship was.                                            ,
17 one final question: did the PUC Bureau of Audits, la your client as you have indicated on the record, did they 18 suggest to you in the person of Mr. John Dial or others that                                    ,
20 they were in favor of the idea that combined management --
21 that is officers and Board of Directors for the two operating 22 utilities -- contemporaneous with the meeting of December 17
                                                  * -- in other words, back at the very beginning of your audit O'                                      ,
function?
                                              '5 14ITNESS NHEATON:              No way.        2 think the answer is:
coMMONWEAI.TM REPORTING COMPANY (7171 791 7150
 
p15                                                                                                                                              809 1    Mr. Dial and Mr. Foster, as well as me and my team, were 2    certainly intrigued by the possibility, but knowing the 3    management audit process and knowing the consulting process, 4    saying that just because somebody put something on the table 5    that sounds good does not mean that it meets the test of good 6  management.
7                            The bottom line of a management audit is to find' s  out if company proposals and company procedures meet that
                                                                . 9    test of good management practices.                We would have been remiss 10    in terms of our professional responsibilities -- or just 11    being logical - to have jumped to the conclusion because 12    Met-Ed/Penelec was proposing.a proposed merger, that it was h 13      something that was the best thing in the world since sliced 14      pie or.something like that.
15                            JUDGE CASEY:  Let's take a five minute recess at
                                                                  '16        this time, and I will permit Mr. Messer to cross-examine 17      without interruption.-                          .
18                            (Recess.)            -
19 20 21                                                  -
22  ,.
23 lw,                                                                  2.                                                                                  ;
i 25                                                      ,                          l i, ,
 
                                                                                                                                                                                          ' 810 Ir1 T2 r cora-OT.
                                                                      ~
                                              '                                                      3uocr cx5=r=              " ~tti so 6 =* o= **
                                                                                                                    ~
2                                              .      Mr. Messer; you may continue your cross-examinacion.
3                                                      MR. MESSER:              Thank you.
4                                                      Mr. Wicker, you have heard Mr. Wheaton's testimony 5                in regard.to the approach that was taken toward the investi-6                gation and knalysis of the proposed management combination, 7                which I believe became an issue sometime p'rior to Da: amber, a                17, but again gained some further focus on December 17.
8                                                      Would you concur in what Mr. Wheaton has said 10                cs f.o the manner and method of approach?
(
11                                                        WITNESS WICKER:                      I would concur with what Mr..Wheator l
l l            r-                            12                has said.                              I think        t...t    I need to address one comment that O~                                    13                you just made, which may not have been' properly expressed 14                or understood from, what Mr. Wheaton said.
15                                                        The specific combination proposal tha* we are 18                addressing here today was, in fact,. presented to us and 17                the Commission staff on or around March 26, 1980, and prior is                to that time we had no knowledge of any specific plans that 18                they had.                              We merely had some general direct. ion from the 20                Commission to review any and all organization proposals that 21 might impact GPU's Pennsylvania operations, and some 22                , indication from the company that they were, in fact, 23 considering such a move.
!da>                                        24                                                      But in terms of actually reviewing their specific
                                          . 25                  plans, that did not occur.                                                    That did got start until the coMMOMWEAt.TH REPORTING COMPANY (7171 761 7150
  -y  ,--..,~re,-.--,-.      --c-,,-.m.,    ,,_.,...,-,w,.,            ..-,-,-w,...-,....c_,                  ._    3,%,---      , , , , .          .. _ ,.    -- - - - - . -
 
                                                                                                          '811 ic2                                                                                                  <-          .
1    26th of March.                                                                          6
    )                                                                                                                    F 2                MR. MESSER:            I think Judge Casey did an excellent 3    job of bringing us up to the December 17th situation and.
4    the point at which those discussions occurred,                It certainly 5  was part of the discussions and concept subsequent to s    December 17'that'the combined management operation would be                        .
7    considered. Would that be a fair statement?
8                WITNESS WICKER:              Again, I don't want to appear
                      . 9    unnecessarily picky about the choice of words here, but I 10    would distinguish between a review o,r an intent to review 11    any plans that the company had'to make any change whatsoever 12    in its operations from the specific proposal which they 13    presented to TB&A and the Commission staff on March 26.                    .
I                          14                So, ag&i,n, I don't want to appear too picky about 15    these things, but I was not aware until January.17 when 16    the announcement was made -- maybe it was even the 18th or 17    the 19th before I became aware of it -- that they had a                      ,
is    specific proposal to, in fact, combine the operations, and 19    I was not involved in a review of that specific proposal 20    until March 26.
21                MR. MESSER:. What we are talking about then, from 22  , my . understanding of the course of events, is that on January 23    17, GPU made a public proposal regarding the combination, 24    and, as I understand, what you are telling me, they had 25    no specific proposal for you to review, although they had I
COMMONWEAL.TH REPORTING COMPANY (7171 761 7150                        k
          -                --          .          .. . . _ . . . _ . .        __      __      _ _ . _              i
 
  ..        ..                                                                                    812 Ir3                                                                  .                    .
()    ,
I          proposed the combination; is that right?
2                        WITNESS WICKER:    That is something that I can't 3          comment on because the reason why w          -- we were asked 4          by the Commission to be involved in the review of GPU's s          proposal.. The extent' to which they had or did not have        "-
6          a proposal as of' January the 17th I have absolutely no id a.
7                        The proposal that we began to review on March 26 8          was the first proposal in any detail other than just the
                  ,    9        statement made by Mr. Kuhns that I had any access to; so 10          whether they did or did not, I really could'not. judge thatA 11                        MR. MESSER:    I am not asking you whether t5ey did
('              12          or they didn't; but it was apparently in the flow of things, 1
13          at least as of January 17 somebody was consider;.ng the 14          management combination.
15                        WITNESS WICKERr. Sure.
16                        MR. MESSER:    So, as time proceeded, the focus 17          became narrower, and plans developed, and prese ntations were l
18          made, and reports were issued, as I understand the process; I
l 19          Would you agree with that statement?
l l                    20                        WITNESS WICKER:    Yes, I would.
11                        MR. MESSER:    So that on Ja'nuary 26, according to your testimony, is the operative dato upon wh'ich you or 22        ,
23        someone at Theodore and Barry received a specific written 1      .
  .                  24        proposal from GPU; is that right?
25                      WITliESS WICKER:    I believe y,pu said January, but it l
CoMMoNWEAI.TH REPORTING COMPANY (7171 761-7150
                          -se--      ----w -w '
 
                                      ~
813        l 1r4                                '
1  is March 26.
2              MR. MESSER:    Excuse mer March 26, 1980.
3              WITNESS WICKER:      That is correct.
4              MR. MESSER:    Is that the first indication that i
5  you had that you were going to be assigned the task of l
6  ' reviewing tha.c specific proposal?          -
7              W'.:TNESS WICKER:    In a specific' sense, yes. Howehr, 8  within the proposal that we made to the Commission for
* t        ,
9  our original order, I was assigned responsibility for 10  what we described as customer operations, and in that t
11  proposal the customer operations ' function included all 12  aspects of day-to-day operations of the Pennsylvania
    -      13  operating companies, o        14              Therefore, I was involved in reviewing their i          is  operations prior to reviewing the specific proposal.
16              MR. MESSER:    Would it be fair for me to assume 17  that there was a change in the direction or focus of your la  review as of March 26, 1980?
19 WITNESS WICKER:      I think that is a. fair characteriza-20  tion, yes.
21                            As of that date, did you receive MR. MESSER:
22  .any. directions from the Commission either from the audit 23 1                staff or otherwise in regard to any change in the scope              ggg 24 of the audit?                                                            l l
25 WITNESS WICKER:    My recolledtion is that somewhere
 
  .-      ..                                                                          gy4 1r5 1
around the end of January -- and it may have been fairly 2      close to the. January 17th statement a- we were advised 3      that the Commission would take an interest in the proposed 4      combination and that they would want us to provide them 5      with an independent assessment of the appropriateness of 6      that proposal.
7                At that time, the primary focus of TB&A            ,
a      activities was to provide the Commission with testimony
              ,  9      in the proceedings that had previously been mentioned; 10      so to a degree we were not in a position to' respond to 11      that request from the Commission until the March 26th meeting.
: 1.                MR. MESSER:  Then who was the person 6r individual s
        )
la      that you were speaking with or communicating with that 14      indicated the change to you?
15                WITNESS WICKER:    Those kinds of communications 16      would have been handled by Mr. Wheaton, but my understanding 17      is that they were a result of communications between the la      Pennsylvania Commission's audit , staff in the persons of          j l
19      John Dial and Glenn Bartron.                                      !
20 MR. MESSER:  Did you personally speak with Mr.
21      Dial and Mr. Bartron in regard to this situation?
l              22    ,
                          ,      WITNESS WICKER:    I d6n't personally recollect          !
I i
23    having any specific conversations with either:of those            l O
[          24    individuals prior to the meeting on the 26th of March, at l'              25      which Mr. Dial and also an ass 6ciate of his, Mr. Foster, I l
ll                                    COMMONWEAL.TH REPORTING COMPANY (717) 781-7150
 
815 1r6 g  believe, were present when the company made its presentation 2            MR. MESSER:    Prior to March ",, 1980, did you 3
undertake the proposed divisional realignment of the 4
Penelec Company?
5            WITNESS WICKER:    I am sorry. Would you repeat C
the question?
7            MR. MESSER:    Throughout the course of this            -
a  proceeding, Mr. Verrochi has indicated that even before g  the audit was begun and as a result of internal discussions, 10  that Penelec was considering divisional realignment.
11            .btr question is whether or.not prior to March 26, 12  1980youconductedareviewofthatproposedorganizational(g)
I 13  change.
i 14            . WITNESS WICKER:  My recollection is that somewhere 15  in early January    I made a trip to both the Penelec and is  the Met-Ed service territories and had discussions with 17  senior management at both of those companies, and the is  suggestion was made that the company was looking into a 19  restructdring --
20              MR. MESSER:  Which company now?      You referred to 21  Penalec and Met-Ed.                                                      l 22      ,
WITNESS WICKER:- I think both companies because 23 as you can presume --                                                    l w
1      24            MR. MESSER:    Please identify then and not use 25  the word " company" to denote two sepasate entities for the            I i
    -                                                                                      i f*OMMONWEALTH REPORTING COMPANY (717 791-7130
 
816 1r7                                          -
O      _
1  purpose of the record _
2            WITNESS WICKER:    Do you wann me to do that now?
l 3            MR. MESSER:    Please.
              .      +            WITNESS WICKER:    My recollection is that at 5  Penelec, I spent the majority of my time with an individual 1
6  named David Bechtold, who was responsible for their
[
7  divisional organizations, and he discussed in a general 8  sense their plans or their reviews, pointing out that 9  they had over a period of time constantly been reviewing 10  the needs and the proper locations for their division 11  operations.
12            Subsequent to thate, L went to Metropolitan Edison I
13  and spent some time with their executive group, and they 14 also indicated tha,t, they had had some ongoing reviews of 15 the needs of their various division operations.-
l                  16            MR. MESSER:    How much depth was there to your l
17 review of that proposed management chapge?
18 l                                  WITNESS WICKER:    At that point in time, very 19 limited. I was aware that they were thinking about it, 20 and, again, I specifically referenced the consolidation 21 rather that the proposal to combine the management, but 22
                      .I did not attempt to review in depth what their proposals l
23 were at that point.in time.
\
24 MR. MESSER:    Was it your understanding that 25 the proposed divisional realignment could be carried out          .
COMMONWEAL.TH REPORTING COMPANY (7171 761 7150
 
l
                                                                            .. 817' Ir8 i  and proceed without a management combination?                          '
2            WITNESS WICKER:    I would think that there certainly a  would be a possibility that a divisional realignment could 4  occur in the absence of a combination.        Whether, in fact, 5  that is the appropriate process to carri out, I think we a  have addressed that in our report, that we feel that the 7  two things should be. handled at the same. time.                -
a            MR. MESSER:    That is your opinion?
9            WITNESS WICKER:    That is my opinion, yes.
10            MR. MESSER:    And, by the same token, if it was 11  the decision that the management combination should not 12  proceed, is it your opinion that the prospective plans for jg 13  the divisional realignment should be dropped or should be 14  continued?          .
15            WITNESS WICKER:    In their present format, they is  may have to be adjusted in the event that there is not 17 a combination of managements, because ,I think there is 18  a certain synergistic effect that occurs as a result of        .
19  carrying out the two organizational changes at the same 20  time; but in concept I would suggest that based upon a 21  review of their specific plans at that time, that it probably 22  would be appropriate for them to continue in pursuing the 23 consolidation in the event that they are precluded from
    ,      24  combining the management.
O 25            MR. MESSER:    In the previous discussion today, it      l l
commo~rrrwm nam ~aTm man; egra me.vic9.                !
 
818 1r9 O('                  I  has been mentioned that one of the major -- how shall I 2  characterize it -- benefits to the Conunission in obtaining 3  people to do independent audits is        their  objectivity; is 4  that right?  Would you agree with that?
5              WITNESS WICKER:      I would say that. is one of a 6  number of benefits that would derive from that process.
7              MR. MESSER:  And involved in the iterative approach, a  which I believe that you have indicated        is the type of
                    . 9  approach that you took,in your study here, is the collection 10  of information to ultimately endorse or oppose specific 11  proposals; is that right?
4 O,                  12              WITNESS WICxEa        that seems a fair accoune, yes.            ,
C1 13              MR. MESSER:  And I believe previously you 14  indicated -to me th,at the type of documentation that you 15  were reviewing in regard to the planned combined management is  proposal was sighificantly provided by Penelec and Met-Ed.                  t 17  Is that also correct?                        ,
18              WITNESS WICKER:      That.is true.
19              MR. MESSER:    So if we may characterize the 20  review that you conducted in this regard, it would be                        !
21  partially based or founded, shall we say, upon the                            l 22  , objectivity of the information that was furnished to you 23  by the respective companies; is that a fair statement?
24            WITNESS WICKER:      It is a fair statement. I would            i 25  not wish to imply that we accepted everything that they gave                  ;
                                          .m
 
819 1rlo
  ,[            1 us without attempting to verify that information by both 2  extensive interviews, reviewing of other company records, 3  discussions with Commission staff and other people know-4  ledgeable in the industry.
5 So while it is true that the analysis, if you will, 6  is I think inevitably based largely on the information 7  provided by the company, we did not use that as our sole        -
8  source of information.
          . 9              MR. MESSER:  In regard to that specific issue, 10    did you consider your function to be one of searchihg out 11  the merits of the combination?
WITNESS WICKER:  I saw our charge by the Commissio      I
{]          12                                    s 13  to look at both the advantages and disadvantages of the 14  proposal to determ,ine whether, in fact, it provi+2d a i              15  better structure to meet the needs of the Pennsylvania 16  ratepayers.
17              MR. MESSER:  In your opinion,, Mr. Wicker, when 18  did the management team at Penelec/ Met-Ed/GPU provide 19  you with what you felt was an acceptable program for the            ,
i 20  combination of the two managements of the different                  l 21  companies?
22              WITNESS WICKER:- On or about the 8th of May, 23  there was a further joint meeting between the Commission a
24  staff, ourselves and the company representatives, and at            ;
i 25    thattimethecompanyhadaproposalofatoplevelmanagementl i
 
820 Irll O
1    organization, which we felt was appropriate to a combined 2      operation in Pennsylvania.
3                  I am not aware that at that time they had, in fact, 4      finalized all of the detailed planning to support that top 5      level organization because, as you can, I am sure, appreciate, 6      the process is one of trying to pin down, if you will, a 7      given part of the organization and then involve                              those 8      people in the further planning of the detailed structures
            . 9'    beneath them.
10                    So on or around May the 8th, at least from the 11        standpoint of the top level organization, we were comfortable h~        12        that the proposal met the needs of the Pennsylvania ratepayers.
l              13                    MR. MESSER:        Was this a written proposal?
14                  ' WITNESS ., WICKER:    My recollection is that over 15      this process the company 'has provided a number of revised 16      books, some of which may have entered into these proceedings 17      at some point in time, which --          I'. am' j.ust not sure whether 18      they had -- what the extent of the written documentation 19      was on May 8th.
20                    I believe they had an implementation plan.
21      I believe they had a list of benefits, and I believe they 22    s had. a top level organization, but I don't clearly remember
()              23      what they had at that point.
i        24                  MR. MESSER:        How were you able to judge whether 25      it had proceeded to the p'oint that you were able to feel i
 
r 021 1r12 I  comfortable with it?
O 2            WITNESS WICKER:      I am distinguishing simply between
!      3  what the level of documentation was at that meeting.            Prion 4  to that meeting we had seen whatever tha latest version 5  of their proposal was and had satisfied ourselves, at 1
l      6  least at the top level at that point in time, it was in 7  keeping with sound organizational practices.
8            MR. MESSER:    Was that the extent of your review 9  to determine whether it was on the basis of sound organiza-10  tional practices?
11            WITNESS WICKER:      No. That was, if ycu will, the          ,
  }  12  extent of the review at that' point in time.        It was to        llhl 13  ensure that the proposed organization was sound and that 14  there woulid, in fact, be benefits that would be provided 15  to the company and to its ratepayers.
l 18            As a result of this ongoidg review, we then          ,
LT  were involved in reviewing more detailed levels of information l
18  and cost and benefits prior to the publication of our report.
19  Where they are right now, of course, I don' t. know.
l 20            MR. MESSER:    You don't know where what is?                    I 21            WITNESS WICKER:      I don't know exactly what the 22  . status of their proposal is as of today.        I assume it is          !
23  not significantly different from the one that we reviewed v
24
(          during our study.                                                        :
i 25                          Does your report deal at all with the MR.,MESSER:
CoMMcNWEALT_H__ REPORTING cOMPONY (799 76M2DG              !
 
          .-        ..                                                                                    822 1r13
[              t      development and implementation of the management and 2      staffing of the Nuclear Corporation -- your section, I 3      am asking?  Did you have anything to do with it?
4                WITNESS WICKER:    No, not in the section; we do 5      not address the Nuclear Co'rporation except insofar as the .
6      formation of the Nuclear Corporation impacts            the generation 7      organ.'.zation of Metropolitan Edison.      I think there may be 8      some references to it; I don't know.
9                MR. MESSER:  There may be some reference --
10                  WITNESS WICKER:    To the impact on Metropolitan 11      Edison generation organization as a result of the formation 12      of GPU Nuclear.                  b  '
13                MR. MESSER:  Did you become involved in reviewing 14      the supporting documentation as regards the alleged $18 millior is savings to the combined companies as a result of their 16    proposed merger?
17 WITNESS WICKER:    Yes, I did..
18 MR. MESSER:  How did you determine whether the 19 figures that you were given were accurate or. inaccurate?
20 WITNESS WICKER:    The basis f.or those calculations 21 were, in fact, the existing organization.            The first step, 22    .if you will/ is documenting what one has in existence ;
l 23 and to the extent possible one can confirm the absolute 1 O, V ''                    24 number of people in the company, and so on and so forth.
25 So from that basis we went through a process of CoMMONWEAI.TH REPoftTING COMPANY (71M 7617150
 
823 1r14 r'      1 looking at each functional area, and, if you will, trying        lhI 2  to creats a conceptual organization which would be required 3  in the event that the managements were coLbined.
4 As one goes through that process, you come                l 5
out with the structure that appears to satisfy the needs 6  of the combined organization by comparison with what you 7  started with. That is how you would determine that there a  were savings potentials.
        ,  9            So the saving, if you will, is an outflow t
t to  of a process of trying to determine what the needs are 11  and comparing that with what is in existence at this time.
12            MR. MESSER:  Specifically my question was directed 13  to determine how you satisfied in your own mind that there 14  would be an annual savings of S18 million.
15            WITNESS WICKER:    By satisfying ourselves that is  the companp's proposed staffing levels in each area were,              l 17  in fact, appropriate to the best of our ' knowledge and belieE is  for them to adequately operate a combined company.
1 19            Having satisfied ourselves that that was, in.ffact,        ,
l                                                                                      l 1
20  the case, then by comparison with what they currently have,            i 21 then one can see where the differences are, and that is                i 22  how the savings, if you will, flow out from that process.
l 23            MR. MESSER:  Was it your understanding, Mr. Wicker,
('                                                                          &
I 24 at the time that you reviewed this documentation that the              !
25 combined management arrangement would , produce an annual CoMMoNWEAt.TH REPORTING COMPANY (71M 7817150
 
  ..    ..                                                                                                        824' 1rl5 c st sad ngs of SIS m W on?
I 2
WITNESS WICKER:                My understanding was that 3
the proposal would generate an annual savings of $18 million.
4 Some of those savings -flowed from the proposal to combine 3
the management, and some of them flowed from the restructuring of the divisional organizations.                                To the extent that 6
                    .g  they can be separated,. perhaps more of .the savings as opposed to "    c ost avoidance would flow from the division reorganizatiorr; a
g    but. a majority of the . cost avoidance' savings would flow from to    the combination.
gg                    .MR. MESSER:    Would you repeat that last sentence 12      for me?
                                                                                '      ~
O-              13                    WITNESS WICKER:                There are two elements to the S18 million.        One is a cost avoidance element, and the 14 15      other is a savings element.
l                18                    The cost avoidance relates to the fact that the 1
17      company, if it were to combine its managements, would not l
1s      have to put in place a duplicate organization in the 19      separate companies as they are currently constituted.                                That 20      number was projected at $8 million.                                Those cost avoidances 21      are directly or largely attributable to the combination.
22                    The S10 million. was based, as I said before , as, 23      in fact, was the S8 million, on the attempt to structure' 24      the company as it would look as a result of the combination, 25    and of that $10 million                some part of,it relates to the '
COMMONWEAL.TH REPORTING COMPANY (7171 76 r.71 SO                          I
          -- -        -.. _ . - _            . _ . .._ _ . _ _ . _ _ . _ , , _ _ _ _ _ .            ,_        _      ]
 
l                                                                              .
325 1r16 1    combination and some part relates to the consolidation of 2    divisional operations.
t 3                MR. MESSER:  What proportion of the $18 million 4    savings that has been indicated that will result do you 5    attribute directly to the divisional reorganization?
6                WITNESS WICKER:  To be honest, I can't remember 7    specifically what that breakdown is, and, again, I don't l
8    think that one can absolutely separate those two numbers
      -  9    because the proposal, as it currently stands, assumes, 10    rightly or wrongly, that both things would be pursued 11    at the same time.                                                    .
{      12                If one were to assume that one were to do it            g 13    separately, then I think that one would have to recalculate 14    the number, the separate numbers.
I 15                MR. MESSER:  What you are saying, as I understand l
l 16    it, is that you can't give us a breakdown; is that right?
l 17                WITNESS WICKER:    Not at this. time; I don't have 18 that information.                                                    i 19                MR. MESSER:  Have you ever seen that information?
20                WITNESS WICKER:    I am really not sure whether I l
21    have ever seen a specific break (own of the separate savings          l l
22    .which would be derived from the two things; but, again, I              i 23    think that that is perhaps more.a function of the fact 24 O
that the proposal stands as an entity and not as two 25 separate prop,osals in an either/or situation.
COMMONWEALTH REPORTING COMPANY (7171 761 7150
 
323 Ir17 l
l] -
1              MR. MESSER:      In your mind, that may be true, Mr.
2    Wicker. But the point is, in fact, we can consider them          '
3    as two different proposals or two different ideas: isn' t            j 4    that right?
5                WITNESS WICKER:      They could be considered as such,.
8    yes.                                    -
7                MR. MESSER:      But, in your opinion,    'n your 8    recommendation in the report, they should be considered              9
                  . 9  as combined together to produce the result that you feel            ,
is, in ,your opinion, to be expected from t}ie combination:
10
                                                                                              ,I 11    is that correct?
12                WITNESS WICKER:      I 7think there are greater 13    benefits to be derived from the whole than from the                  ,
i 14    individuaI parts, yes.
l 15                MR. MESSER:    Could you refer, please, Mr. Wicker, i
16    to page VI-18 of the September 1980 report of Theodore 17    Barry and Associates?                        .
18                WITNESS WICKER:      Yes; I have that.                    ,
19                JUDGE CASEY:      It is Chapter VI, Roman Numeral 6-18.
20                WITNESS WICKER:      I have that.
21                MR. MESSER:    Is this part of the' report which you.
22    were primarily reponsible'for?
23              WITNESS WICKER:      Yes, it is.
O-              24              MR. MESSER:    In the middle of the page, it says 25    that, "While the intention to assess dhe division COMMOMWEALTH    RTING COMPANY (7171768 71g            _
 
                                                                            '827          '
Ir18 I'          1 organizations and configuration is appropriate, efforts to        l        I 2 date are insufficient to actually proceed with a 3 consolidation. The opportunities for achieving cost 4  savings through consolidation are substantial, and, in fact, s  represented the bulk of the savings associated with the a  combination as originally proposed by GPU managemeat."
7            Is that an-accurate statement, sir?                  -
3          WITNESS WICKER:    Yes, it is.
9          MR. MESSER:    We are talking there about consolida-10  tion of divisions, aren't we?
11            WITNESS WICKER:    But I would just draw your
  .          12  attention to the distinction that is made earlier in the          g k                                            '
W 13  report between cost avoidance and cost savings.
14            .The cost savings are reflective of the reduction 15  from existing levels that is proposed.      The cost avoidance 16  is the avoidance of those costs that would be associated 17  if one were not to combine the companies. ,
18            So I think this statement is totally in accordance 19  with what I previously stated.
20            JUDGE CASEY:    They were the two elements th'at 21  made up the S18 million?
l l            22            WITNESS WICKER:- That is right.
23          JUDGE CASEY:    Do you remember what portion of the 24  S18 million was assigned to cost avoidance?
l 25            WITNESS WICKER:    dpproximately S8 million was Ii
(                              COMMONWEALTH REPORMNG COMPANY mM 7617150 l
 
    ..    ..                                                                                82&
1r19 Om                    1    assigned to cost avoidance.
2                JUDGE CASEY:    And the balance was cost savings?
3 WITNESS WICKER:    Right.
4 JUDGE CASEY:    Cost savings was something that they' s
were already committed to that they could eliminate, some-
'                      8 thing that was in the organization?
I WITNESS WICKER:    That is correct.
8                                  Cost avoidance would be-anticipate @
JUDGE CASEY:
8 or prospective costs that they would not have to incur if 10 they made these changes?
II WITNESS WICKER:    Combine the management; that is.      ,
(),                  12 correct-13 JUDGE CASEY:    Go ahead.
4
                                          'MR. MESSER:  I have no further questions at this.
I3 time, Mr. Casey, but Mr. Shilobod would like to continue the general examination of the three people involved.
MR. MORRISON:    I don't know.- I assume that both l                            of those gentlemen are representing JARI, and certainly if 8
they are both going to question the witness in the same area, i 1                                                                                                    1 20                                                                            l I think it is certainly inappropriate.                                  .
21 Are there two organizations represented?
MR. MESSER:  In response to that, you have offered;      3 23                                                                          i all three witnesses, and we are going to attempt to confine-our examinations to specific areas and certainly not be                l i                    25 redundant.      -
j                        _.
COMMONWEAL.TM REPORTING COMP ANY (7171 781 7190  _
j
 
l E29 ir20 1              JUDGE CASEY:    They are co-counsel in this case            llh 2  for JARI, and they have signed the appearance sheet that                      f I'
3  way. They have shared cross-examination of witnesses.        For        j i
4  instance, Mr. Shilobod, I believe, questioned Mr. Verrochi                !
5  yesterday, and Mr. Messer questioned Mr. Donofrio, and thans 6  they prepared cross-examination in different areas, and 7  we permitted it without objection by other counsei.
8                MR. MORRISON:    Fine. Your Honor, the only probleme
              . 9  I am trying      to ' address is redundancy or addressing the 10  same areas even albeit with different questions.
11                I think that as long as they intend to develop 12  different areas, then I have.no ps:oblem.
13                JUDGE CASEY:    Who were you going to cross-examine, 14  Mr. Shilobod?          ,
15                MR. SHILOBOD:    Preparatory to addressing some                f 16  questions to Mr. Wicker, I had some questions for Mr. Wheaton.'
17                JUDGE CASEY:    Were you going.to go over the same 18  areas that Mr. Messer covered?                                              :
i 19                MR. SHILOBOD:    I do not believe so.                          ,
1 i                20                JUDGE CASEY:- I will permit you to proceed, and 21    we will see where we are going with this.
22        .      MR. MESSER:    I think part of the problem, Your Honor, 23  is from the focus on behalf of the attorneys presenting
( .                24  the three witnesses, it is very difficult to adequately 25  prepare or devote one's efforts to cross-examining one COMMONWEAL.TH REPORTING COMPANY (71M 7817150 w          .-    -      -                    -
 
830 Ir21
      ~
(/                1    witness when all three are presented at the same time.              We 2    understand that that is for the purpose of convenience and 3    time saving, but at the same time it certainly doesn't 4    permit the real definitive type of cross-examination approach, 5    which is normal in these proceedings.
l s              JUDGE CASEY:    Proceed, Mr. Shilobod.
7                          CROSS-EXAMINATION a              MR. SHILOBOD:- Mr. Wheaton, were you responsibla
                . 9    for the drafting of the introduction of the management to    audit report?            .
11                WITNESS WHEATON:      I had overall responsibility 12    for the report. In that context, the report, including 13    the introductory section, was prepared under my direction.
(                    14              .MR. RUSSELL:    Would you speak a little louder, i
15  Mr. Wheaton?
16              WITNESS WHEATON:      In that context, the introductory 17    chapter was prepared under my direction.
18              MR. SHILOBOD:    Who fixed the overall and specific l9  objections of your study?        Was that part of the function that 20  TB&A carried out?
21              WITNESS WHEATON:      What are you specifically 22  . referring to?
l                    23              MR. SHILOBOD:    For instance, on page I-2, you 1        --
            -        24  list a number of "overall and specific objectives cited above,"
25  and then there are also some sub-objectives, and I am not CoMMONWEAI.TH REPORTING COMPANY (71M 7917190
 
Ir22                                                                  831 1  sure what this meanx; that TB&A suggested'the following 2  sub-objectives. Is this something that was utilized 3  internally to TB&A whenever it adopted its proposal?
4              WITNESS WHEATON:    No; and this is on I-2. The 5  overall and specific objectives -- or the sub-objectives tha:t-l 6  we outlined here were taken from our proposal, which, asr T  I indicated, we submitted on November 1st.
s            But in preparing our response to the Commission's'
      ,9    RFP request for proposal, we, through our expertise and to  having performed any number of management at$dits to the 11' utility industry, had become aware of'other issues that                  ,
I
{-
12  we think are important to be. addressed.      In other words,        h l        13  they may not be specifically asked for in the RFP, but we-14  think that our study accommodates these types of things.
15              MR. SHILOBOD:    On page I-3, one of your sub-16  objectives is to " Provide a vehicle for improving the 17  credibility and relationships of the Company and' the PUC l
18  with political entities, with the press, with customers, and                '
19  with the money markets by preparing an accurate and well--
j 20  balanced report on management and operations."
21            Is that a function that is normally the purpose 22
                                          ~
            .of management audits, as you understand them to be?
l 23            WITNESS WHEATON:    We have made it a part, I believ 24 of every management audit that we have been involved in.                  l l
l 25 l                        MR. SHILOBOD:    Whenever you undertake to improve            j i
i NAATH RGRTINB RPANY (7171 761 7150                        t
 
832 1r23 g
the credibility and relationships of the utility and the 2
Commission with the rest of the public as part of your 3
management audit, in-your perception, does this in any 4
4 way affect.your ability to carry out an objective study?
5 WITNESS WHEATON:                Not in my opinion.            .
                                          ,                    MR. SHILOBOD:                Is there any possibility that you
                                          -7 see of a conflict of interest if that is one of the purposes a    of your study?
g                    WITNESS WHEATON:                Not from my perspective and go    understanding of the industry.
11                    MR. SEILOBOD:                Not frcm your perspective and 12    understz.nding of the industry, but from your perspective O-                                      13    and understanding as a professional.                                                    ,
14                    WITNESS WHEATON:                I think if I can use a phrase,.
15    we try to " pierce the corporate veil,"                      the corporate veil.
16    in this case where we intend and fully accept the fact'that 17    our client is the Bureau of Audits of the Commission.
18                    The ultimate client that we have are the ratepayers-19    of the jurisdiction in which we are dealing in the mandated 20    management audit.                      In that context, if, in effect, improving.
21    the credibility and relationship of a company with the PUC 22    .happens to be a vehicle that is helpful in accomplishing 23    that end, I see no inconsistency.
* O '-                                    2-                    an              Sartonoo:  waat it tae i= tere t= or ta-25    ratepayers might be different than thg improvement of the COMMONWEAL.TH REPORTING COMPANY' (7171 791 71SO
  --+---9-,a-              *., --- ,        ,      w,,- . - .      , , . . , -    -                      -          --  , - - - .
 
837      ,
Ir24
(]                1 credibility in relationship to the utility and the Commissiod                )
2            WITNESS WHEATON:      We have no problems there, and 3 I don't see that in conflict.        As a matter of fact, in this 4 particular case, I think we have been quite forthright in 5 identifying things that were de&iarit with the cczipany, and I thini-that?
l 6 in terms 'of our testimony before the Commission in I-308,
                                                                                                      ~
l 7 we have indicated where there were deficiencies on the a part of the Commission        in terms of rate orders that it has-
                  . 9 issued, the ones that we would have done differently.
10            So I think the real key here is the ability to 11 provide a well-balanced report.        Fundamental to that is i
{.                  12 the basic belief that if the. facts are put on the table 13 in a forthright manner in a balanced perspective, that l
14 the ratepayers, th,e Commission and the company will all 15 benefit from that process.
16            MR. SHILOBOD:      Was there any discussion with Mr.
17 Dial or other members of the staff with respect to this la objective of improving the credibility in relationships 19 with the public?                                                          l 20            WITNESS WHEATON:      Not specifically that I can              l 21 recall.                                                                    f 22    .        MR. SHILOBOD:      Was there any change in focus e
23 by the Commission once the decision was made to proceed 24 with the managemeent audit?        Was there any change in the 25
,                        focus on the approach that TB&A could take with respect                    !
l                                        -
l
_ _. _._'.                        CoMMONWitALTH REPORTING COMPANY (7171 781 7150
 
834 1r25
  . 7 s
1    to the proposed combination or the reorganization of 2    divisions?
3                WITNESS WHEATON:      First, in terms of changes 4    in approach, at no time during the course of our study 5    were there changes in approach.          Any changes that came 6    about were changes in scope or identification of specific 7    issues where time would be expended.
8 ,,              MR. SHILOBOD:    Did you have overall responsibility-9    for the summary of strategic recommendations and the rating          j i
10      of priorities. of them as set' forth in Section II of the 11      management audit report?                                              ,
n              12                  WITNESS WHEATON:      As.the  entire report was        .
O':
13      prepared under my direction, the answer to that question' 14      is yes.  -
l 15                  MR. SHILOBOD:    If Your Honor please, I am going i
16      to come back to that issue.          I think, however, for the        j 17      sake of a coherent presentation on the,one issue, I would 18      like to switch to Mr. Wicker, if I may.
19                  JUDGE CASEY:    All right.      Before you get away 20      from the subject of the scope and objectives or objectives 21      and scope in the report, I think it is clear in the intro-22
                            ,duc, tory part that the first full paragraph under the heading l
23    of " Objectives and Scope" is a general overview of the audit.
l O'                2' The nexe ver eraeh 99 rene1r        re the esecific      !
25      areas of interest that the PUC wanted, covered,, the issues l
COMMONWEAL.TH REPORTING COMPANY (7171 7st .7150      .
 
635
* 1r26
[    t  when they asked you to submit your proposal to them.
2            Then underneath that you finish up with the 3  sub-objectives that you conceive as being valuable additions 4  to the audit.
5            But you have prefaced those subrobjectives with 6  the following statement;        "In addition to tha overall and 7  specific objectives stated above, TB&A suggested the s  following sub-objectives.*
t 9                                                                                '
Now " suggested" being past tense, I assume that 10  you had made that suggestion to someone before you put 11  your final report together and received approval at least                    ,
(],  12  in principle to include the sub-objectives of your own                      ggg 13  into this final report.
14            WITNESS WHEATON:          My recollection would be that 15  that process started when we included those sub-objectives l
16  in our proposal, and, in effect, our proposal is made a part 17 of the contract in and of itself.                  .
18            So specifically, the adoption of our sub-objectives, l      19  unless taken out of the context of the contract itself, 20  could have changed that.        That process did not take place.
21            So I would say that implicit was the ' adoption 22 or acceptance of these sub-objectives by the Bureau of Audits.
23 l                    I would also point out that prior to the issuance 24 of this report, the Bureau of Audits had full review of                        -
25 each section, , including this section, and there certainly was i
CCMMONWEAL,TH REPORTING COMPANY (717f 7617150                    i
                                                                        %_ _ _r ecl.,
 
836 1r27 1    no problems in terms of their, if you will, tacit acceptance-
                                                                                            ~
2
* of these sub-objectives.
f                        3                      JUDGE CASEY:    So if any of your sub-objectives l
4    had proven to be a bone of contention, it would have been
(                        5    raised at the time that your proposal was submitted or l
6    sometime thereafter before this final work product was
!                        7    filed?                                                                      s 1
8                      WITNESS WHEATON:    That is right.
                      . 9,                    JUDGE CASEY:    Go ahead, Mr. Shilobod.
10                      MR. SHILOBOD:    As a follow-up to that, Mr. Wheaton, 11    I was given a copy of the contract between TB&A and
;    n                12    the various companies late yesterday afternoon.
.O-                    13                      Do you have a copy of that contract before you?
14                      WITNESS ,WEEATON:    Yes, I do.
15                      MR. SHILOBOD:    In paragraph 1, it says, "The 16    parties to this contract and agree as PIMM. The consultant 17    shall perform the management audit as , outlined in and 1
is    in accordance with the promises, warranties and representa-l 19    tions contained in its phase one cost and technical proposal, 20    which is attac.~ed and incorporated into the terms of this 21    contract" -- ir. parentheses, " Attacliment          A," closed parenthe-22  ,ses, period.
23                    "The consultant shall performs his obligations
  .(                    24    with due care and according to such standard practices as.are 25    generally employed in the conduct of audits of this type."
COMMONWEAL.TM REPORTING COMPANY (7177 761 7130
 
83 7 1r28 1              My first question is:      in your opinion, g
2  did TB&A carry out its management audit in accordance with the 3  standard practices, as are generally employed in the 4  conduct of audits of this type?
5              WITNESS WHEATON:      Yes.
6              MR. SHILOBOD:      There is. a reference to an 7  Attachment A, which apparently contains some promises, 8  warranties and representations, and I don' t have a copy of I              ,
9  that attachment.      Do you have it?
10              WITNESS WHEATON:      I don' t have it with me.      I 11  am sure that that could be made available for the record.
i 12  The Attachment A is, in effect, our proposal that was G;
13  submitted to the PUC.
I 14              -MR . SHILOBOD:    The promises and warranties contained 15  therein, do you remember-the gist of them?
16              MR. MORRISON:    If I might, Your Honor, that is                  :
l                                                                                                      I 17  a public document at this point.        I think it speaks for l                  18  itself. It is on file with the, Commission, and I don't i
19  think it would be apropriate for a witness to try to 20  summarize the language from his recollection.            It certainly-          l 21  is available.      Such contracts are filed with the Commission.                l
;                  22  If Mr. Shilobod wishes a copy, he can get it from the file                      l l
23  room. I am sure that other parties have copies of it.
i
: y. .
        .          24              MR. SHILOBOD:    That is correct, Your Honor.          The i
25  point is that we got this at 4:30 yesterday afternoon without l COMMONWEALTH REPORTING COMPANY (7171 761 7150
 
838      1
          .r25                                                                                            k I  the attachment, and I was trying to short-circuit this.
    )
2            If the desire is that we refrain from cross-3  examination on that until a later date, that is acceptable.
4            MR. MORRISON:    There is a difference between s  cross-examination and asking hDn to give his recollection-6  of what the contract says.
7            JUDGE CASEY:    I will ask Mr. Wheaton if he has 8  anything in his possession right now or whether he trusts-
                    . 9  his own recollection to describe what might be standard                        ;
I 10  warranties or representations or promises that are given                        i
                                  .                                                                        I 11'  in connection with most, if not all of your management or t              12  your consulting audits that you do.                                            i O".
13            WITNESS WHEATON:    First, the audit proposal is 14  a document of some, 200 pages in length, and, with all due 15  respect for my abilities to recap what is included in those 16  200 pages, I can't /s  -hat.
17            I would sai      t specifically in terms of                          f l
18                                                                                  '
warranties and promises. etcetera, we have attempted to l
19  .capsulize the contents of that proposal in this introductory 20  section, and I feel very comfortable that the objectives l
21                                                                                  '
i and scope, the approach and methodology that are outlined 22  ,in tnis introductory section are an accurate summary of 23  the contents of that specific proposal.
24            As a matter of course, I believe that one would 25  find that these five sub-objectives aye, for example, clearly j                                        COMMONWEAL.TH REPORTING COMPANY (7171 76171 SC
                . s    --      -                                                      . _ _ _ .
 
I
                                                                            ., 839 Ir30 I    taken from that proposal.
2              What we tried to do for the record -- for' the a    public record -- instead of burying them with 200 pages of 4    detail' which is more pertinent to the Bureau of Audits,-
5    which is expert in these things, was to provide an assess-a    ment of something that was more easily understandable to 7    the public.
s              So I think that this is a fair summary of the
      , 9    contents of our proposal.
I 10              JUDGE CASEY:  Do you say that the proposal is 11    200 or more pages in length?
12              WITNESS WHEATON:    Yes, and a certain amount of 13    that is boilerplate.
14              JUDGE CASEY:  That is as long or longer than 15    the audit report, the study.
I 16              MR. SHILOBOD:  Mr. Wicker, I understand that 17  you received the planning draft of the, various companies 18    on March 26, 1980 or shortly thereafter.
1 19              JUDGE CASEY:  Has that been marked as an exhibit?
20              MR. MESSER:  These are ones that I believe we 21  have agreed because of certain confidential information not          [
22  to mark into the record, Your Honor.                                  :
t 23              MR. SHILOBOD:  This is the first draft of the G
24 h;
l              so-called Blue Book.                                                ,
l                                                                                    t 25              JUDGE CASEY:  All right.      ,                          I l
I COMMONWEAL 7H REPORTING COMPANY (71M 761-7150          ,
 
    -      ,.                                                                              840.
Ir31                                                                              ,
O~              1            Wa. SultOBOo=-      Is that correce?
2              WITNESS WICKER:      Yes; I believe it was on March 26 a  that we received it.
4              MR. SHILOBOD:      After you received the Blue Book, 5  is it fair to state that you then concentrated upon the 6  . study of the management combination in the rest of the 7  proposal?
8            WITNESS. WICKER:      The team of people that I
              . 9  coordinated, their primary function, as described in this to  document that we have submitted as Administrative 1, or 11  whatever, was to focus on the proposed combination.
        ^.      12              We had other consultants that Mr. Wheaton
        -r                                                .
13    referenced, I believer 14 or 15 people that were at some time-14    involved in this process, and I was not directly responsible-15    for all of those people; so that was not the only thing 16    that was happening, but that was my primary responsibility.
17              MR. SHILOBOD:      That is what ,I am asking.      With 18    respect to you, were<you focusing on the management 19    combination as such at that time?
                                        ~
20              WITNESS WICKER:      Yes.
21            MR. SHILOBOD:      To what extient were you now l
l 22  , focusing upon the reorganization of divisions now that 23  you had this report on the combination?
t s
24            Would it be, fair to state that your attention                    ,
25  now was turned more toward the management combination per ser? l l
cOMMoNWEAt.TH REPORTING COMPANY (7171 781 7150
_ __      -- ,    , _ . I'  ._.~1  -
                                                                  . _ _ _ . -      ._.-~    ._? - -
 
I Ir32                                                                              84L O
WITNESS WICKER:    It is probably fair to say that.
9 C'          3 2
I suppose it is a question of degree.      In going thro' ugh 3
the analysis, we looked very in detail at the company's 4
intentions with regard to the consolidation of divisions 5
because one of the aspects of their original Blue Book, 6
if you will, proposal was a separation in the division 7    organization between the transmission and distribution            -
8 or line crews, responsible for installing and maintaining g  the field equipment, if you will, and the customer service i            in organization.
it So in looking at that, we really had to get                  ,
12 into the whole question of what the plans for the division 13 were because that is an integral part of it.
14              .But, having said that, I think it is fair to 15    say that yes, probably more time was spent on the consolida-l tion -- the combination; excuse me.                                    !'
16 17              MR  SHILOBOD:  Was there now a change in focus la    of the general management audit.from what it was prior to 19    the issuance of the report on March 26, 1980?
20              WITNESS WICKER:  I don't think that you could 21    say that there was a change of focus on the part of the l
22    entire report because, again, there were a number of 23  people, many for which I was not responsible, who were              g l
U    '
24  still doing the other parts of the review.
25              From our own standpoint, in ,the customer operations.
!            _il                                                                              m
 
l
    ..    ..                                                                                841 1r33 N                      area, which was identified in the proposal, it would be
    ) ]-        t 2        fair to say that rather than looking at the same detail on.
3        systems and procedures, we were more concerned with the l
l                4    ,
appropriateness of tha proposal to combine the management.
5                    MR. SHII,OBOD:  To what extent did you rely upon 6        the Booz-Allen Report with respect to the reorganization 7        of divisions?
8                    WITNESS WICKER:      First of all, we read the Booz-9        Allen Report,. and that was the subject of some of the 10        interviews that we had with managements of both Met-Ed and 11        Penelec.
12                    My recollection is that in the Booz-Allen Report,.
O-          13        they made a specific recommendation to-review the divisional 14        reorganization, and I can't give you a specific reference 15        on that, but I could look it up, if you like.
                    .a .
16                    MR. SHILOBOD:    I am asking:        to what extent 17        did you rely upon any recommendations ,that they made with 18        respect to the reorganization provisions?
19                    WITNESS WICKER:      With all due respect to Booz-l l
20        Allen-Hamilton, a very prestigious and competent consulting i
21        company, I didn't think really that the term " rely upon" 22        is necessarily appropriate.          We used it as background 23        information to assess the operations of the company, but                            I l        s
      )        24        from that point on formed our own independent opinions as 25        to what the benefits and potential disadvantages were.
COMMONWEAL.TH REPORTING COMPANY (717) 761 7150                      ,
t
 
                                                                                  '843    J 1r34 l
1 i
D.
    --        1              MR. SHILOBOD:      As I understood the testimony a
i 2  earlier this morning, whenever TB&A was retained to                      l l
3  do this work, it was understood that the Booz-Allen Report              I i
4  was a starting point.        Is that a fair statement?
5              WITNESS WICKER:      That is a fair statement.
i l
6              JUDGE CASEY:      After you received a copy of 7  the Blue Book in March, what did you do then?
8              WITNESS WICKER:      Not necessarily -- I will try            .
            '  9  to describe the sequence, but before I do, I would point 10  out that as again we have described in the report, which                  j 11  is being submitted, .this is somewhat of an iterative process, !
12  so it is not a very clean break between Step A, Step B, ll 13  Step C and Step D.
14              But given that caveat, the process is one of,                  j 15  first of all, understanding the omM2nts of the Blue Book.                  f i
16  It is a detailed analysis of all of the positions in the f
17                                                            ~
company, and it is an attempt to identify what at that point              f 18  in time the company's plans were'.
19              So our first steps were to spend time making 1
20  sure that we understood what the company's proposals were.
21  Then we looked at those proposals and attempted to find l
22  .what weaknesses and/or strengths came about as a result of 23 l                  this and went through a process of analyzing each functional 24 O
area, of looking at the staf fing requirements, of making 25  comparisons with other utility organiz'ations with which we t
                          . . . _cpMMoNWEAl.TH .R@RTING_QQMPANY 17,1.ZL761 7 t SO
 
8%.!
  ''1r35' I        are familiar, and so on and so forth, interviewing 2        executives to try to understand what the needs were.-
3                  JUDGE CASEY:    Mr. Shilobod's one question regarding .
4        the Booz-Allen-Hamilton Report; did you adopt any 5        recommendations or specific findings that they had made i
6        with respect to the division reorganization plan and 7        incorporate those findings in your own report?          Did you s        agree with any of their pcsitions that they took in their            ;
                . 9        management audit done in 1978 with respect to that very 1G          question?
11                    WITNESS WICKER:    In responding to that, the e            12        implication I have from that-is that -- I ~would say no,            !
'C-                  13        we did not in the sense that we took it from the Booz-Allen I
i 14        Report. and put it into our report.
15                  On the other hand, I can't say that there aren't          i 16        recommendations that were made by Booz-Allen that are not,
                    'I in fact, contained in our report because to the extent 18        that the company has changed and has implemented some of l
l 19        the recommendations of the Booze-Allen Report, there are 20          also instances where perhaps there is still a need to address 21                                                                              '
some of those issues.
22            .
So there may weli be some overlap, but at the 23 same time we haven't assumed, if you will, that the
        ~
O                  ''
sie=aeion 1  ehe same, and eherefore whatever Booz-^11en 25 had to say was, in fact, applicable to the present COMMONWEAL.TH REPORTING COMPANY e7171 761 7150
 
245 c
            't 1r36 1    circumstances.                                    -
h 2                JUDGE CASEY:    Had the company,from your observa-3    tions, done something or anything following that Booz-Allen 4    audit in 1978 to implement the division reorganization plan.
5    that was recommended therein, if it was recommended?          Had a    the company done anything at the GPU system?
7                WITNESS WICKER:    I think I mentioned earlier on s    that one of the first exercises that I was involved in 9    in early January prior to the announcement of the combination-to    and prior to them producing at least for        my review the 11    Blue Book, I had had conversations with both Penelec and 12    Met-Ed executives, and they had conveyed to me the fact              g  l
    -,                                                                                W 13    that they were continuing to look on an ongoing basis at 14    the most appropriate way of organizing their divisions, l                                    ,
is    and that they had some plans in that direction, but I i
l        16    did not review them at that time.
17                So yes, they had and we had h,ad discussions.
18                MR. SHILOBOD:  As I understood your earlier testimony, 19    the divisional reorganization and the management combination 1
20    are part and parcel of the same thing; is that right, or 21    am I wrong?
l 22        ,
WITNESS WICKER:    I don' t believe I said that.
23    I certainly would want to correct that      if that is what 24    I did say.
I 25              I believe that pursuing both ,of those actions at              l l
1 COMMONWEALTH REPORTING COMPANY -(71M 7817150
 
i 840
    **lr37' I    the same time will produce certain benefits which we
: O,      .
2    have identified at least some of them on page VI-18 of 3    our report,.which, if I may, I will read briefly.
4              It says, "Although such consolidation could be 5    achieved without a mangement combination, there are e    advantages to a more ambitious consolidation program as 7    part of the management combination.
8              "A coordinated approach to the consolidation
                  . 9    and the combination would be desirable for several reasons,"
10    and then we list four or five reasons, which, if you wish, 11    I would read into the record.
12              MR. SHILOBOD:    I am;somewhat confused by this, O. ~.          13    Mr.- Wicker. Whenever you addressed the Commission at the 14    end of. June at the. annual review presented by the company 15    to the Commission, you ga';e a strong endorsement to the 16    management combination, did you not?
17              WITNESS WICKER:    The use of the term " strong" 18    may not be appropriate, but we did endorse the combination, 19    yes, 20              MR. SHILOBOD:    You did more than endorse; i                  21    you spoke quite forcefully for it, did you not?
22        . WITNESS WICKER: 'That is your opinion.          I really 23    would not want to comment.
24              MR. SHILOBOD:    Do you think I am wrong?
25              WITNESS WICKER:    I don ' t remehber exactly what we I
COMMoNWEAt.TH REPORTING COMPANY 4717 761 7150
_                                                  _                      ]
 
847 1r38    -
1 said. We submitted a report as of June 26.                        I don't 2  know whether that has been entered into the record.
3              To the extent that that is practical in making 4  a presentation, our comments are contained in that report.
5  If you choose to suggest that that is strong, that is t
6 all right.
7            MR. SHILOBOD:            You made an oral presentation              '
s also, did you not?
9            WITNESS WICKER:            Yes, but, in essence, sticking 10  pretty close to the content of this.
11              MR. SHILOBOD:            At that time, you had indicated r'.        12  to the Commission that there w ere savings to be achieved;                        Bh 13  is that not correct?
14              WITNESS WICKER:              Yes, that is correct.
15              MR. SHILOBOD:            Is it not a fair statement that 16  there was an impression that $18 million would be saved 17  as a result of the management combinat, ion?
l 18              WITNESS WICKER:              If my memory serves me correctly, 19  the company made a presentation at that date, and that 20  referenced the fact that they believed that $18 million 21  was an achievable objective, and that in our presentaticn i
i 22  report we concurred that that projected savings was 23 achievable.
24            MR. SHILOBOD:            At that time, whenever you spoke l.
F 25  to the Commission, did you in any way,present to it any enuunumran vu memnaviuss t namsamv evi n ras. rt aan                  I
* 848 l'r39 1  concept of the timing of these perceived savings?
2              WITNESS WICKER:    I don' t believe that we 3  independently provided an assessment on that.        I think the 4  company had a schedule, if you will, for implementing the
!                      5  change, but we did not, as I am aware of, present any 6  independent view on that.                                            .
7              MR. SHILOBOD:  I was present at that meeting, a  and I gained an impression.      I would like you to tell me 9  if I was wrong.
10              I gained an impression that if this management
:                    11  combina' tion could be implemented, that within a short time l
      -              12  there would be an $18 million a year savings.        Is that.
4 O'~S
  '-                  13  a fair assessment?
f l                    14              .MR. MORRISON:  Objection. His impression is 15  irrelevant, number one , and, number two, no one knows 16  what a "short time" is without a definition by the 17  questioner.                              ,
18              JUDGE CASEY:  It is a, characterization, I think.
19  This witness has already explained that apparently the 20  $18 million combination of avoidance and cost savings 21  is something that originated with the company as a result 22  of the work-up that they had done.
23              Based on his review, he and his organization
()-                  24  apparently concur with the company's assessment that there 25  is a potential for cost avoidance in the amount of S8 million i
commonws4Lm acronnua COMPANY W M 76 f.71 SQ          I
 
r
                                                                                        ..g49 Ir40 1
and cost savings in the amount of $10 million; is that
(])    1 2  correct?                                                                              :
l 3            WITNESS WICKER:              That is correct.                                l 4            JUDGE CASEY:          Is that the tack or the approach                      ,
I 5  that you took at the time of your June presentation to ther 1
6  Public Utility Commission?                                                            !
7            WITNESS WICKER:              Yes.                                            .
l        s            JUDGE CASEY:          Do you remember whether you brought                    t
      ,9    that subiect up first or had the company already given i
10  the briefing to the Commissioners and the staff?                                        :
f 11            WITNESS WICKER:              The company gave their annual 12  review. This was part of the- company's annual review,                          l 13  and, to my understanding, all of the utilities in Pennsyl-                              l 14  vania are at least,potentially subject to an annual review-                              l 15  before the Commission.
16            This was GPU's annual review.                      Because of the 17  sensitivity of some of these issues, we were asked by      ,                            l 18  the Commissioners to make ourselies available and to provide-19  them with an interim report as to the status of our review, 20  and we, in fact, made that presentation and submitted this and one other document on their order at that time.
                                                                    ~
21 22    .      MR. SHILOBOD:            At that meeting, there was no 23 discussion of any amounts of savings specifically allocable
    ~
24 to the divisional reorganization, was there?
25            WITNESS WICKER:              I. don't bePieve so.
NMMMMWRAIN mEMSMM PMMS AMY ev1 P T A T .7 t M
 
850 1r'4'l
,o            -
t MR. MORRISON:        I am going to object to going 2  over the testimony that was given at this prior hearing.
3 If I understand correctly, there was a hearing.              That is 4
a matter of public record, and I don't -- and, again, it 5  is another proceeding.          .
6            JUDGE CASEY:    I am going to overrule the 7  objection unless the witness can't recall.          B ac the a  question, I believe, was:        was there any specific                  .
I
                                          ,  9 reference to the division reorganization plan that both to  of the- operating utilities would undergo with respect to' it  either avoidance,or cost savings?
l        /                                  12            Was some portion of,that $18 million attributed t
13  to the division reorganization plan?        Is that your question?
14            MR. SHILOBOD:        That was my question.
15            MR. MORRISON:      My point, Your Honor, is that i
16  I think we have gone extensively over prior testimony in 17  other proceedings. It is clearly not relevant, and I think.
18  there comes a time to halt that.
19            JUDGE CASEY:    We are only involved in this 20  proceeding. I don't know what other proceedings you are l
21  talking about.
l l
22      ,
MRs MORRISON:      I think they are talking about the 23 presentation that was made, the company's testimony in U
24 another proceeding by TB&A.
25            JUDGE CASEY:    That is the pr,esentation that was coMMoNWEAt.TH Rr*oRTING COMPANY 17171 761 71S0                l
                                                                                                                          ._ e l    __
 
851-
                                                                                            ..      ..l 1r42 l
1 attended by the company and attended 'by TB&A at the 2
behest of the Commission, and it is relevant to what the 3
understanding was back in June.
4 I am going to overrule your objection and ask 3  the witness to answer.
6            MR. MORRISON:              I don't think the understanding l
7 in June is relevant to anything frankly.                I think.that if      -
a Mr. Shilobod or anyone else has. questions about the report,                        {
9 the recommendations, that is fine.                That is relevant.
Io  What was said back in June is not relevant unless it is, 11 of course, used for some purpose other than to find out                              l t
12  what the recommendations are.
13            JUDGE.CASEY:              You may have your objection              W 14 in the record, but I am the boss, and I disagree, and your is objection.is overruled.                                                              ;
is            Would you-answer that question?                                          I 17            WITNESS WICKER:              Would you repeat the question?
l i
t l              18            MR. SHILOBOD:              During,the presentation to the                l I
l                                                                                                        i' 19  Commission, was there any discussion about 'the potential 20  savings from the divisional reorganization as differentiated 21  from savings from the management combination?
22      ,
WITNESS WICKER:              My recollection is that in' our
                                                                                              ~
23 presentation, we did not distinguish between those 'different l t v              24  elements of the presentation.                                                lll 25            I believe that in the presentation made by the O
COMMONWEAL.TH REPORTING COMPANY 47t"n 761-7150                  . .i
        -- --i                            . _ _ . _ . _                                ,.
 
    .-                    ..                                                                                                                                                                                  asz 1r43.
t 1
0                                                  1      company, reference was made to the reorganization as well as >
2        the combination,'but I prefer that you ask that question 3        of the company representatives.
4                                                MR. SHILOBOD:                            You are not sugges. ting la any fashioss 5        that there was a break-out of expenses by the company in its-a        presentation, a break-out o.f savings by the company in its 7        presentation to the Commission differentiating savings a      between the divisional reorganization and the management                                                                                                '
                                                ,    9      combination, are you?                                                                                                                                  9
                                                                                                                                                                                                                    }
to                                                WITNESS WICKER:                          Again, I really don't think it 11        is appropriate for me to comment on what my recollection is                                                                                            l O                                  12        of what the company said.
Os 13                                                I.know that they did present the qualitative 14        and quantitative benefits that they expected to be l
15        derived from the proposal to combine managements and                                                                                                    ,
16        consolidate the divisions.                                                                  Whether they separated the two r 17        I really don't remember.                                                                                      ,                                        l t
l                                                  18                                                MR. SHII,OBOD :                        Do you.have with you a copy of thes l                                                  19        section on the management combination that was presented 20        by the company to the Commissicn?                                                                                                                      i 21                                                WITNESS WICKER:                          Well, I have a copy here that                                        ,
22        may,or may not be -- I believe it is pages 110 through 116 23      of the document that I believe you have there.                                                                                      Whether the-Oa 24      copy that I have is an exact duplicate of that, I don't 25        know.                                                ,
s 1 .                                                                                                                  COMMONWEALTH REPORTING COMPANY (7171 761 7150 1
 
                                                                                                        .. 853 Ir44 m
i                  MR. SHILOBOD:        This is the copy that Mr. Russell              gg 2  gave to me in I believe the prehearing conference.                Would 3  you compare those pages?
4                  JUDGE CASEY:    Was it marked as an exhibit?
5                  MR. SHILOBOD:        No.    .
6 JUDGE CASEY:    It was simply given to you for 7  background purposes?                                                            ,
3                  MR. SHILOBOD:        Right.
9                  (Mr. Wicker comparing documents. )
10                  JUDGE CASEY:    Mr. Shilobod, in this area I am 11  wondering what you are trying to achieve by testing the
                    ,  12  witness' recollection of what the company had to say on
  ~
13    that occasion since he was not responsible for and did not.
O 14    participate in the company's annual report or presentation 15    to the Commission except to supply at the Commission's 16    request their own overview of the management combination 17    at that stage.
18                  MR. SHILOBOD:        What it is, Your Honor, it was 19    something more than an independent presentation by TB&A.
20    It was a presentation that was made at a time at which only l
l                                                                                                                      '
l                      21    Mr. Kuhn's -- or rather the GPU employees and the TB&A
'                                                                                                                      I 22    employees at the same time had a special meeting with the                                8 23  ultimate finder of facts in this proceeding, mainly the                                  l
  --'                  24  Commission; and I think in preparation of add'itional                            ll      1 l
25  cross-examination, I think it is extrgmely important that                                ,
l COMMONWEAL.TH REPORTING COMPANY (71M 761-7150
_ _ _ _ _ _ _ . _        n      .m  _._ .        m _ _  _ _ _    _,,  _..m  .                                ...
 
l 854
  ' 1r4 5' '
g we establish what information has been conveyed to the 2
Commission, what impressions have been given to the Commission 3
to date.
4 MR MORRISON:      Your Honor, if I might address that:
3 number one, Mr. Shilobod's characterization of it as something 6
other thart independent is, of course, only his conclusions.
l 7      and is irrelevant to anything.
8              . JUDGE CASEY:    We don't have to make those 9      observations.
10                  MR. MORRISON:      The company's testimony and indeed it these witnesses' testimony in another proceeding is completely m        -  12      irrelevant to what we are doing here today.
O wl            13                  If Mr..Shilobod or anyone else has questions about 14      the company's proposal in terms of the review by TB&A, 15      that is fine.      In terms of whether the company said it or is      noc certainly has nothing to do with the TB&A witnesses.
17      Whether they can recall it or can't recall it is completely 18      irrelevant. It simply has nothing to do with what we l
19      are talking about today.
l                  20                  JUDGE CASEY:    In general, what you say may make        ,
i 21      sense. However, what Mr. Shilobod stated just preceding            I 22      your remarks is that if the commission ultimately decides -          ,
l 23      not myself; my decision will be a recommended decision --            !
l if the Commissioners themselves by a vote cast at a public            j C "' '            24 25      meeting decide the question as to whether this proposed O
COMMONWEALTH REPORTING COMPANY (7tM 7417tSo
 
855        l Ir46 I
i  management combination and the GPU Nuclear affiliated 2  interest agreements are in the public interest, as that 3  task has been defined by the Supreme Court of Pennsylvania, 4  and they were unduly influenced at some course within the 5  month or year preceding, or they had already made up their            .
6  minds, I think Mr. Shilobod is entitled to explore that              j i
7  through cross-examination.                                            j 8            MR. MORRISON:    That is an entirely different
        ,    9  subject altogether. It doesn't have anything to do with to  the record here.
11            There was a record in that proceeding, if I i            12  understand what proceeding we are talking about.                lll 13            JUDGE CASEY:    It was not a proceeding as such.
14  It was the annual orocedure of certain, I suppose, electric 15  and other fixed utilities to report -- and this may be 16  all post-1976 development, I don't remember -- but it is 17  not only the annual report, which is a. document filed 18  with the Secretary of the Commission, but apparently now 19  the company -- and, in particular, the GPU companies -- had 20  to appear and explain the state of affairs for the 21  Commissioners ' bene fit.-
22      ,    Is that correct?'    You were there on that occasion.
23 What was the purpose of the meeting?                            g C                                                                                W 24          MR. SHILOBCD:    I was there. All Commissioners were 25  the re . I certainly was not allowed to participate. This was
 
1 1rT7                                                                                  853
  -                      I    wholly a presentation of the company's point of view to 2      the Commission for projection into the future.
3 There are all sorts of documents here of what 4    they are expected    to have. There is a section on their 5    rates on financial. There is comparison of their rates 5    to other companies' rates. There is comparison of electric-T    bills. There was a discussion about their need for a    capacity in the future, and so on.
9                It was a general state of condition of the 10    company being presented to the Commission, at which time 11      Mr. Wicker participated.
I          's          12                JUDGE CASEY:  If that is what the Commission i
13    expects from this company and others, what is wrong with 14 the company giving, them an in-depth picture, I might call it, 15 of what is happening?    Now that wasn't done in the context
                                                                  ^
16      of an adversary proceeding after the affiliated interest 17      agreements had been signed.                  ,
l                      18 So do you think that there is something improper i
19      in what the company did, number one, or, number two, 29      in TB&A appearing since they were in the midst of an 21 o
audit and giving their own personal 'verview:        do you think 22  ,that that centaminates the proceedings before me?              Or what 23 is your specific position in that regard?
l
(}                  24 MR. SHILOBOD:  My specific position, Your Honor, 25 first of all, is that there was a presentation to the COMMONWEAL.TH REPORTING COMPANY (7171 761 7750
          .      ~.        __                            ..        _. -
 
l                                                              857 j 1r48                                                                              l I
l
.m t  Commission in which the impression was conveyed that S18              )
2    million per year would be saved as a result of the management-3    combination with no distinction between the management            j i
4    combination an'd divisional reorganization, and that TB&A          ;
5    at that time participated in that presentation so as to 6    create an impression that great berofite could be obtained 7    if the management combination would proceed.
i 8              JUDGE CASEY:  Is that fatal to the agreement          .
          . 9    that we have to review?    Now they have broken it out, and to    we find it to show where- and these savings and cost 11    avoidance are potential, prospective.- Although Mr. Verrochi 12    and I think Mr. Donofrio were very strong, they said 13    based on these figures, these salaries, these fringe 14    benefits, if these, people are cut out of the picture or            ,
15    certain people are added, we are definitely -- I am not 16    going to equivocate about that $18 million, at least as 17    to the cost - well, maybe both, the cost savings and the-i is    cost avoidance.
19              But I think the fact -- it seems to me that what 20    you are trying to establish is that neither of the parties, 21    the company nor the management consultant knew at the time 22    . that the division reorganization was one of two integral 23    parts of thi    $18 million savings, and if they did know, g
24    it was a secret that they kept from the Commission in June.
25              Is that the thrust of your position?
 
858' Ir4Y g
MR. SMILOBOD:      I wouldn't label it as a secret.
2  I ,would say that,it was information that was not conveyed 3
to the Commission in June, that is correct.
4              MR. MESSER:  I think that it is important, Your 5  Honor, in terms again of going back to reviewing the context 6  in which the information was presented, in terms of what 7  was the- purpose of the specific presentation regarding a  the management combination, what is the effect of the g  information that was displayed at that time by both the l
to  company and TB&A.
tt            .If you look at the circumstantial basis for that 12  presentation and the posture ,in which it was made, does'that 13  in any way reflect upon the objectivity or the lack thereof 14  of the indepent      sdit?
15            WITNESS WHEATON:      If I could perhaps provide 16  some perspective in- terms of at least TB&A's perspective i
17  on that annual meeting and our process, because we, in l
l                  18  effect, provided two reports at,that meeting, one which l
19  Mr. Wicker gave and one which preceded that which I gave,          !
l                  20  for the record, I think it is very important that we put            l l                                                                                            ,
l l
21  in context what my report to the Commission was at that point j      .
22  in time.
23            very simply, ours was entitled, " Status Report          ;
24  on the Management and Operations Audit of Pennsylvania 23  Operating Companies of GPU."              ,                        j f
i COMMONWEAL.TH REPORTING COMPANY ' (71717617150        ;
 
l 859 1r50 i
I    I
  ],        3 There were a number of items that we were looking 2
at in terms of our overall study. In terms of the audit 3
status, we provided a summary in Exhibit 2 in that particular
          ,  case, which took the six major tasks of the overall management 5
and. operations audit that we were performing, and those 6
tasks were rate case testimony, organizational issues 7
review, nuclear issues review, energy issues review,          -
a financial issues review, and report preparation.
        ,  g          We also indicated to the Commission at that point to  in time the percent completion of each one of those tasks,              ,
11 and with respect to this, we said to the Commission, in 12 terms of our organizacional issues review, we have completed!
13 70 percent of our review as of this point in time, clearly 14  putting on the record that there were additional things 15  that we would be doing, that anything that we were saying 16  was, in effect, a preliminary report.
17 Mr. Wicker then followed on and talked specifically-18  with respect to the work that we. had done, with respect 19  to the review of the proposed combination of companies.
20            I only put that on th'a record because I think 21 that, as with our entire report, the organizational issues 22  that we are talking about -and addressing here were one of 23 a larger part, but we did want to make sure that the              Jg 24 Commission was well aware of where we stood at that point 25 in time,                                e
 
  .-        ..                                                                                  860>  -
1r51                                                                                          .
        '              g                If subsequent information had developed that, 2    in effect, indicated that our preliminary findings were, 3    in fact, not appropriate, we would have so made that clear 4    in our final report.
5                I think the timing of putting the whole thing intcL g    perspective is very.important 7                JUDGE CASEY:      All right; I understand your position.
a    Let me say this:    I think the logical extension of your -
g    argument, Mr. Messer, is this; that if the PUC Bureau of to    Audits was in sympathy, if they had empathy for the whole
,                    11    management combination going into this project and during l
12    the project, if TB&A Associapes was working on it and O                  13    at the later stages supplying recommendations and input, 14    and it comes down at the end, and everybody is in favor i
15    of the idea, what am I doing here?          I am not an expert on 16    corporate management.
17                I will tell you what I am doing here.            We are la    supposed to make a record.        Assuming that all of these 19    things are true, that the Commission, that the management 20      consultant and the company worked hand-in-glove to produce 21    this result, these two affiliated interest contracts, I 22    still have to find some way to exercise an independent 23    judgment on my own based on everything I have heard from O'                24    a11 sides.eo che extent th e I            hte  d eive it to the -
25                I don"t know what my recommendation is going to be.
    ._        .. . _ _ _ _      . ,  .    '_cOMMONWEAt.TH
                                                        ,  MEPORTING COMPANY #7177 751 7150
 
                                                                                      $61. .,
tr52                                                                                                i l
(        1  The Coatmission is at liberty to accept my recommendation,                    @
2  to modify it, or to reject it out of hand.
3              If you sense at some point at the end or if 4  you sense in your participation in these proceedings that 5  the independent judgments are not being made, that the e  Commission had already made up its mind at some prior 7  point and is simply. " rushing to judgment," if I can use 8  the title of a former book, then you make legal argument O  to that effect, and you put in your briefs what you think to  the whole situation is all about, and then we will see 11  what happens to it, if it should go on or up on appeal.                          .
I 12              But, in the meantime, I don' t thi'nk that you can                    -
V 13  advance the ball by intimating that these people had 14  fallen out of their independent consultant's role and they 15  were now in there as a relief pitcher for the company in 16  a game that was being played for the Commission's benefit.
17  That is essentially what it boils down, to.                                      f 18            I think right now would be probably a good time 19  to recess for lunch. So we will come back at 1:30 today.
20              (Wher,eupon, at 12:10 p.m., the hearing was adjourned, 21  to be reconvened at 1:30 p.m. this same day.)
22        ,
23                                                                                    i
::5                                            ,
COMMONWEALTM REPORTING COMPANY 47171 781'.7150 m-        - . - - .
 
  .* 1r56                                                                                                                            86Z. .
[                                                    1                          AFTERNOON SESSION 2                                                (1:30 p.m.)
3                JUDGE CASEYi    We will go back on the record.
4                Mr. Shilobod, you may proceed with your cross-5  examination.
s                MR. SHILOBOD:    As a final item in the discussion 7 we had before the break, Mr. Wicker, you did file a s  separate report with the Public Utility Commission in
                                                  ,9        June dealing specifically with the management combination; to  that is separate and apart from anything else that TB&A 11  may present to the Commission, is that correct?
12                WITNESS WICKER:    Yes , a preliminary report at that O-                                                    13  time, yes.                                                .
14                MR. SHIL,OBOD:  That is the blue copy?
15                WITNESS WICKER:    That is the blue copy, yes.
16                MR. MESSER:..Should we wait for Mr. Morrison?
17                MR. FAZZONE:    We can go ahead.
18                JUDGE CASEY:    Then we.can continue.
19                MR. SHILOBOD:    Do you know what the timing is of 20  the $18 million per year in savings?              When would we expect 21  to see it?
l 22      ,        Say that the Commission on the 1st of January, 1980 l
23 were to approve the combined management agreement, when 24 would we see the S18 million in savings?
25                WITNESS WICKER:    Well, again, I think it is COMMONWEALTH REPORTING COMPANY (7171 791 7150
 
Ir57                                                                            863 1  important to differentiate within the S18 million the cost 2  avoidance and the savings portion as far as the cost 3  avoidance is concerned.      Then at least in principle I would 4  assume that if the Commission were to render a decision                    !
s  which would preclude the companies from combining managements, 6  they would within the next 12 to 24 months have to take steps 7  to employ the people that have been identified under the cost 3  avoidance categories.                                                      .
i 9            As far as the savings are concerned, then I don't              ;
i 10  know that we can assign a specific time frame, but I would                !
11  expect that the relocations would take place over the period of the next two to three years, and that as that
(        12 llh l
13  process develops, that the savings would be realized.
1 14            MR. SHILOBOD:      You did review the Blue Book l          15  presented by the Penelec people, did you not?                              ,
16            WITNESS WICKER:      Yes, I did.                                :
1 17            MR. SHILOBOD:      And you did review the estimated -
l 18  cost savings that were contained there, did you not?                        ;
19            WITNESS WICKER:      Yes. I would point cut that that l
20  " Blue Book" was, if you will, dudr first approach to the 21  subject and not necessarily completely compatible with their 22  final product.
You reviewed the revisions to the-1  :
23 24 MR. SHILOBOD:
Blue Book, namely the White Books and the Green Books and e
25  so on, did you not?                          ,
COMMoNSEAt.Z CEPoRTi~ID C4;"TZr$7 6709 EJ0 99(~9
 
X I
1r5 G .
* 864  i s              1 WITNESS WICKER:      Correct.
2 MR. 3HILOBOD:      And you reviewed the timing            !
3 shown 'therein with respect to the potential savings, didn' t 4
you?
5 WITNESS WICKER:      My recollection within the books.
s 1, that the schedule that was laid out was for implementing I
the changes that would be required after taking the 8
necessary steps.                                                      t This proceeding I do not think was one IU of the identified steps, but certainly filing with FERC II and other interested parties, the necess.2ry paperwork was e-          12                                      '' '                                '
          .            identified.
13 So to the extent that that schedule represented I4 a step-by-step process for the beginning -- the reorganization, e
I then one could say that it had some relationship to the 16 expectation of achieving the savings; but I don't think 17 that the two things should be considered as the same thing.          ,
la MR. SHILOBOD:    Did you not consider them in the        l 19 same vein?
20 WITNESS WICKER:    I think again the schedula that is 21 outlined in the reports is one of, if you will, implementing 22 the' changes, and, to a degree, one would assume that as 23 one went through that process, that you would generate a
()                    savings; but in the sense of exactly when those savings would 25 cccur, I don' t think at least in the paperwork that I have COMMONWEALTH REPORTING COMPANY s71% 75171SO
 
V Ir59                                                                                        86F
(                    1  seen, that that is being clearly spelled out.
                -        2            MR. SEILOBOD:    Did TB&A ever make a 3  study to determine the timing of the savings?
* 4            WITNESS WICKER:    No, we did not.
5            MR. SHILOBOD:    Did TB&A make any independent                ,
l                    .
6  calculations with respect to the probable costs of the 7  management combination?
8            WITNESS WICKER:    We did not make an independent
                  -      9 review. We reviewed the material that the company put 10  forward and satisfied ourselves that it was a fair 11  reflection of the costs that would be* involved.                        i i
(})>
12            MR. SHILOBOD:    Did you make any attempt to              ll) 13  correlate the savings reported in the amended Blue Book 14  to the. rep'orted $18 million for the. year savings?
15            WITNESS WICKER:      Yes, we did. The reason I 16  hesitate there is because, again, we have this evolutionary-17  process that is occurring here, and our attempt, as I is  have tried to explain before, was'not to look at the 19  savings as the, if you will, objective of the exercise,                  ;
20  but to in the best way that we could determine what would
* l 21  be the appropriate organizational configuration for the                  l 22  Pennsyivania operations of GPU.                                            .
23            Having determined that organizations,                          i J
24 the savings become an outflow of the process.
25            MR. SHILOBOD:    As far as yodr final presentation
* COMMONWEAL.TH REPORTING COMPANY (7171 761 71SO              +
 
5 I
          'Ir60                                                                                    -
866          1 N                                    is concerned, these savings were an extremely important 1
2      issue, were they not?
3                    WITNESS WICKER:      I think that the benefits 4
associated with this proposal are the subject of this 3      proceeding, but I would not agree that the savings that g      you reference are the only reason or necessarily the 7      most imporeant reason for doing it.                  -                            -
8 I think there are some other qualitative g      benefits which estimates might be made as to the potential'                            ,
10        cost savings, if you will; but, to the best of my knowledge, 11        that has not been done.
      ,                            12                    I think that those.,qualit'ative benefits are                                l i
O                                13      at least as important as the savings, but perhaps in 14      themselves not the issues that you want to address.
15                    MR. SHILOBOD:      The last revision of the. Blue 16      Book .was produced on or about June 10, 1980; is that 17      correct?
                                $18                      WITNESS WICKER:      I believe that,that is 19        approximately the date.
20                      MR. SHILOBOD:      The last revised June 4, 1980;
                                                    -                                                                                  ,1 21      is that correct?        You are nodding your head.
22                    WITNESS WICKER:- Yes, that is correct.            I am 23      just looking at a draft that was updated to 6-11-80, but'                                  l l                                                                                                                                      s my recollection is that that was not a new material.                        I t-(}                      .        24                                                                                                  l 25        was merely a restructuring of the 6-4 book for the purposes                                :
COMMcNWEAt.TM REPORTING COMPANY (7171 791 7150                            ,
_--v        w -
 
Ir61                                                                                    '"867'-
                                                                                        ~
g  of presentation.
2              MR. SHILOBOD:    You indicated that you got the 3    first draft of the Blue Book when it was issued on March 3
26, 1980, or very close thereto; is that correct?
5              WITNESS WICKER:      That is correct.
8              MR. SHILOBOD:    After that, you then conducted 7    interviews throughout the company; is that correct?
s            WITNESS WICKER:      That is correct.
g            MR. SHILOBOD:    And you interviewed individuals to    at both Met-Ed and Penelec; is that correct?
11              WITNESS WICKER:      And GPU Service Corporation.
12              MR. SHILOBOD:    And.GPU Service Corporation.
u                13              WITNESS WICKER:      And representatives of other            9 14    organizations, including JARI.
            ~
15              MR. SHILOBOD:    Do you have the schedule of when is    you had those meetings with the various individuals?
I                    17            WITNESS WICKER-      No, I do not.
!                    18              MR. SHILOBOD:' Do you , remember having an 19  interview with Mr. Frank J. Smith on or about April 15, 1980; 20    Frank J. Smith, a senior Vice-President of Met-Ed?
21            WITNESS WICKER:      That is my confusion.        I thought l                    22    it was-Floyd.
23            MR. SHILOBOD:    Then I stand corrected.
t        .
    ~~                24            WITNESS WICKER:      Would you repeat the question?          lh 25            MR. SHILOBOD:    Do you recall having a meeting o
CoMMONWEAt.TH REPORTING COMPANY 17171 768-7150
 
1r62                                                                  -        868'
  ,                        I    with him on or about April 15, 1980?
2                WITNESS WICKER:        I would think it is extremely a    likely that I would have met him or around the 15th of 4    April, 1980, yes.
5                MR. SHILOBOD:    If Your Honor please, I am going-s    ask that there be marked for identification purposes as 7    JARI Exhibit Number 4 a four-page document.          The title a    page is headed, " Interview Summary," and this is one 9    of the documents that we obtained through Mr. Russell in 10    the course of our discovery following the prehearing 11    conference.
12                May I have that marked for identification i
Os                    13    purposes as JARI Exhibit 47 l
14                JUDGE CASEY:    Your Exhibit 4 will be so marked.
15                                            (Whereupon, the document was marked as JARI Exhibit No.
16                                              4 for identification.)
i 17                MR. SEILOBOD:    Do you remember having a meeting, 18    Mr. Wicker, with Mr. F. J. Smith, at which-time you were l
l 19    accompanied by Robert Euler, James Davis, and Lee Burgess?
I presume you are talking about    I l                          20                WITNESS WICKER:
l 21    a specific meeting. I met with Mr. ' Smith over the process 22    of this review on a number of occasions, and on sone of I
I                          23    .those occasions had other members of my staff with me; so            1 a                  24    I assume you have a specific meeting in mind.
25              MR. SHILOBOD:    I believe I mentioned earlier April CoMMONWEA4.TH REPORTING COMPANY (713 741 7150
 
Ir63                                                                              **869''
1  15, 1980. I believe that the correct date was April 10,            q  ,
2  1980. Would that still be approximately correct, as far 3  as you are concerned?
4            WITNESS WICKER:        It is at least highly likely.
5            MR. SHILOBOD:        Do you remember having a discussion o
t                  6  with Mr. Smith with respect to the overall Met-Ed organiza-7  tion and the various functions that it has with Penalec?            -
8            WITNESS WICKER:        Since that was the purpose of 9 our review, I would imagine that that was the subject of to  that interview, yes.
11            MR. SHILOBOD:        Do you recall relating to Mr.
12  Smith what your work assignment was primarily geared to
  ~
13  at that time?
14            WITNESS WICKL2:        I think that you are stretching I
1 l                  15  my powers of memory to assume that I can specifically 16  remember' a given date in time and the exact content of the l                  17  conversation.                                    ,
1 18            If you have a document that has some background l
18  to it that is legitimate, then I am perfectly willing to 20  review it. But I don' t see the value in conjecturing as l
i 21 to what I did or didn' t say.        I assuma that is what I            ;
22  talked to him about, but I can't confirm that as to the                    i 23 specific date.
l 1
24            JUDGE CASEY:        First of all, Mr. Shilobod, the llh I
25 document which has been identified for identification as e
l                                                                                                '
l                                                                                                1 COMMONWEALTH REPORTING COMPANY (7171 768 7150
          ---~ ~ -      - --
w-                  -
_ ___ e m ____ w - --      --
 
    -            .' 1r64                                                                                870
( ) ''                          1  JARI Exhibit Number 4, do we know who prepared that, whose 2  work paper it is?    Is it a Theodore Barry and Associates 3  form?    Is it a Met-Ed form of some kind?
4              MR. SHILOBOD:      If Your Honor please, in the 5  cross-examination, as I recall, of Mr. Dieckamp, there 6  was discussion about the            inter-company practice of 7  keeping an interview summary sheet of the various interviews a  with  TB&A during the course of the proceedings.
                            -    9              In the prehearing conference, Mr. Russell presented to  a list ofk relevant documents for our review.          At that time, 11  we mentioned that if there were any summaries of the 12  various meetings with TB&A, we' wanted to see those too.
O-                            13              JUDGE CASEY:- You are giving me the background of 14  how y6u obtained this particular document, but what I 15  was inquiring about specifically is whether these are 16  forms and work papers used by Theodore Barry and Associates.
17              Is the content of the exhibit prepared by Theodore is Barry or by corporate officials or employees of Met-Ed or 19  one of the GPU system companies?                                        ;
4 20              MR. SHILOBOD:      From the information we have --
l 1
21  and, of course, Mr. Russell could correct me -- from the                !
22  .information we have, these are in-company documents that                !
23 is within the GPU system.          They were documents prepared dor    l
(      ~                        24 and kept by employees of the GPU companies summarizing the              i 25                                                                          I results of the interviews, and we havg a large number of CoMMoNWEA1.TM REPORTING COMPANY 17171 761 7150            ;
                                                                                    --          . . . .  .. s.
 
Ir65                                                                          871 I
these, and this is one of a large number.                                {  )
2            JUDGE CASEY:    There may be a clue to that on Attachment C, which is the second page.      Down at the bottom, 3
4 there is an asterisk, "For Audit Coordinator use only,"
              .5 and in the lower righthand side it says, "The above documents 6
were requested of me by the TBA Auditor on the date indicated; 7  Submitted by F. J. Smith."
s So that apparently is a method o,f record-keeping 9  about audits _and company documents that were requested.
to  That is maintained oy the Met-Ed Company; is that correct?
11              MR. SHILOBOD:    That is correct.
  ,          12              JUDGE CASEY:  How about the attached narrative          -
1
(_.                                                                              Is 13  interview summary consisting of two typewritten pages?
14  that Mr. Smith's?  ,
15            MR. SHILOBOD:    That is my understanding, Your
!                                                                                                i 16  Honor.
i 17            JUDGE CASEY:    It says, " Interviewee:      F.J. Smith."
This may be a regular procedure,. but it is a little                          i 18 19  Confusing based upon what I am used to outside this.
20              Usually the interviewee is not the preparer                        [
i l
* 21  of the report. In this case, apparently he was the preparer.
22      . MS. SHILOBOD:    That is correct.
23            JUDGE CASEY:    If there is a statement made any-24  where in the body of that information which is provocative 25  to you and you want to question withou,t going around in a                    !
CoMMoNWEAt.TH REPORTING COMPANY (71M 7617150
 
                  . Ir66                  l                                                                                    872 l
circuitetts manner, come right out with a statement and
() -
3 t
2 ask the witness, Mr. Wicker, if that was the general tenor 3
of the understanding and conversation on that occasion.
MR. SHILOBOD:    Mr. Wicker, in the. meeting of 4
i                                      3 April 10, 1980, according to the interview summary of Mr.
6 Smith, senior Vice-President of Met-Ed, the following 7
statement is made, and I would like to know whether you a  agree with the characterization or not.
* 9                    MR. MORRISON:    Objection, Your Honor.        The to    witness has already stated that he has no independent 11 recollection of the meeting.
12                    JUDGE CASEY:    This may help.      He says that he f3
< (
            ~
13  knows that he met with Mr. Smith on occasions around that 14  period of time.            There was a strong likelihood that there 15  was a meeting on April 10.                Some of the meetings were in                !
t i
16    the company of other Theodore Barry and Associates' audit                              l 17    team members.          Some may have been with just the one-on-one la    basis situation, Mr. Wicker and Mr. Smith.                                              .
I 19                    But I think that he can refresh his recollection 20    as to this meeting, and ask him whether he recalls.
21                  You are objecting to the form of the question, the 22    char.acterization?
23                  MR. MORRISON:      I am objecting to several thines.
          -                            24    First of all, the witness has said he doesn't have an 25    independent recollection.            Second of all, he did not record o
COMMONWEAL.TM REPORTING cQMPANY (717 7ET 7150
              ..    ~ . - . , . . -            . . . . .
 
Ir67 873
  ''-          I his own notes, or, at.least, if he did, that is not what 2  we are concerned with here.
3              This is hearsay. It is prepared by another 4
witness, and it certainly is improper -- it is clearly 5  improper for an attorney to question. a witness about some-thing that somebody else prepared.      This is hearsay; there 6
7  is no question about it.
8              JUDGE CASEY:  Somebody else did prepare it, but
            ,  9  he can test his recollection as to whether such a meeting to  occurred; and this is the witness testifying under oath
    ~
11  whether there was any such understanding, tacit or otherwise r 12    that occurred on that occasio.n. Maybe it was the form of        {lg
  %J 13    the question.
14              MR. MORRISON:    The result is to get Mr. Wicker 15  to testify as to something that is clearly hearsay.      That l
l              18  is the point that I am making.
1 17              JUDGE CASEY:  It is not hearsay  if he can is  testify under oath    as to whether that understanding was 19  known to him.
20                MR. MORRISON:  If he testifies as to what Mr.
21  Smith said to him or, in fact, what he said to Mr. Smith, 22    then it is hearsay.
23              MR. MESSER:  I would sumbit, Your Honor, that O
24  it doesn' t have anything at all to do with hearsay, and it 25    is a function of testing the witness' recollection of events I
 
i.
1r68                                                                                                  370  ;
I l<
1 that occurred.                                                                                    .
2              JUDGE CASEY:                        Right; not only that.      It occurred i
to me -- and I get a little rusty on evidentiary matters                                          !
3 4
from time to time -- but this apparently is a record kept 5  routinely in the ordinary course of business by Met-Ed, 6  and he was dealing with Met-Ed on that occasion.                                He was 7  present, and he is here now.
8              MR. MORRISON:                            Even if that were true, Your Honor, t
                          ,  9  it would only be a record admissible as against Met-Ed                                            !
i to    itself, and they are attempting to use this document when                                          .
I i
11    the witness has testified that he has.no recollection of
      ,-                    12    what was said.                                              ,
13              Even if he were to testify as to what he said, 14    it would be hearsay.                      Hearsay is any extra-judicial state-15    ment offered to prove the truth of what is said.
16                JUDGE CASEY:                        The truth of the matter asserted,                .
17    right.                                                              ,
l                            18                MR. MORRISON:                            He didn'c write this himself.                I i
19                MR. MES3ER:                      We are not testing it in that regard, 20    and, as the court is well-aware, the cross-examination --
t 21    the probative value of testing the recollection of a witness 22      by using a document has always been permitted, and, as you 23    correctly indicate, one exception to the hearsay rule 24    happens to be the business records exception, and, as a
[]} -'
43      result of this exception, he has the ability to proceed to o
COMMONWEAL TH REPORTING COMPANY 471"h 7617150
 
ir69                                                                    875 L
i  test Mr. Wicker's recollection as to his knowledge of what          $  I 2  occurred.                                                              l 3
It isn't offered to prove that Mr. Wicker said              ,
4 or did something that is in the document.      It is offered s
to find oitt exactly what Mr. Wicker did.
6 JUDGE CASEY:    In effect, we are not trying to 7  get the testimony of Mr. Smith into the record indirectly.        -
a  We are not trying to get an untested opinion.                          j g            We are trying to find out from this document                ;
10  whether this gentleman at that period of time had an                  j ti  understanding of what his audit function was        which parallels l 12  or conforms with that of Mr. Smith.
I don' t care what Mr. Smith thought about it.
O  ,
13 i
14  I want to know what this witness' understanding was, whether          ,
                                                                                        +
15  he was to change directions and concentrate on a certain                ,
16  aspect of the audit or to continue along the lines spelled 17  out in the initial proposal.      That is all I want.
i 18            Now he can make this statement and ask the i
19  witness if he had an understanding or if that was his 20  intention. He is not asking what Mr. Smith *hought about 21  this.
l 22      ,
MR. MORRISON:    Again,'Your Honor, I think that 23 is precisely the point, that Mr. Wicker's understanEling, fine, 24 may be admissible, but it has nothing to do with Mr. Smith.
25  W'. tether he agrees with Mr. Smith or disagrees is totally i
COMMONWEALTH REPORTING COMPANY 1717 791 7150
 
1r70                                                                                      37 6 irrelevant.to this proceeding.                                          .
O-                                                2 1
JUDGE CASEY:  That is right; I agree with you.
i 3
MR. MORRISON:  That is why it is not relevant.
4 MR. RUSSELL:  May I put a word in here?        -
5 JUDGE CASEY:  Yes , you may.
6 MR. RUSSELL:  I object to getting in an unsworn,.
7 unidentified and unqualified statement from some document.
s It seems to me that the appropriate way to do it is to g  .:; bow the witness the document, have him direct his attention-        l I                                                  10 to the statement, a'nd ask him, first of all,. whether that ti conforms with his understanding of what was done.          If the 12    answer is yes, we can proceed., If the answcr is no, we                  ;
13 have not clut'tered up the record with the statement.
14                JUDGE CASEY:  That is all right; but the wording i
of that particular paragraph, paragraph 2 -- and I won't                  i
                                                    .t5 16    read it into the record for fear I will draw a million 17    objections -- but the preparer who wrote this stattemtint 18    says that the idea of what the s, cope of the management 1
19 audit was did not emanate or originate with him.          It came 20    from the person or persons conducting the interview, and 21    they, in fact, were the Theordore Barry and Associatss' team.
22                He has a right on cross-examination to ask
                                                        ,    t 23  Mr. Wicker if what is stated there about the scope er the 24  change in course of the audit was actually what Mr. Nicker's 25    intentions and what his actions indicated at that period a
COMMONWEALTH REPORTING COMPANY a7?P 7817150 l                                                                .          - . ~ .  . . . . . . ~ , ,  ...              _
  --  ..---n-          ,,.n,-----  .- - - - - . _
 
ir71                                                                          ''877        l g  of time.                                                                  {  g 2              So you can give the witness the papers that have 3  been identified and direct him to read to himself the 4  second paragraph, and then frame a question, if you will, 5  which comes out in the affirmative; if you know what I mean.
6  You state -- not Mr. Smith isn' t stating it - you, the 7  cross-examiner, is stating the question.                                        .
8              MR. MESSER:  Your Honor, just for one second, 9  I have got to make a telephone call at 2:00.              So rather 10  than interrupt the examination, would it be all rigi.t if 11  I leave at that time and return?
__        12              JUDGE CASEY:    Yes; if you don't mind that the 13  proceedings continue in your absence, you can be excused as 0
14  o f noW too ".        ,
l l            15              MR. SHILOBOD:    If Yodr Honor please, as a point 16  of evidence, I wish to point'out that a business record is 17  an exception to the hearsay rule, in which case -- it is an 18  exception to the hearsay. rule, and, as such, a hearsay 19  objection has no purpose.
20              If it is a business record, we can introduce that 21  document for substantive purposes because it is not blocked 22  by hearsay.
1 1
23              If Mr'. Russell is raising a question as to 24 whether or not this is actually a business record of Mr.                  h 25 Smith's, I would like to know that becau,se this was produced l
co-ouw. uu .. oan                                            j co- ~v o, n 7. i .m.
 
1 Ir72                                                                                  370 1
() ~            1  to us in response to a request for discovery.
2              JUDGE CASEY:        I agree with the general principle.
3  Now the person who wrote this, I think in the evidence books 4  they used to refer to them as the " declarant."                It is a 5  business record.        If it would be offered to prove the truth 6  in the matter asserted as a business record, it would fall 7  outside -- it is one of the exceptions, one of the recognized 8  exceptions to the hearsay rule.
              . 9              But I think that it could be limited to the truth 10  of the statement as made by the missing third party, the 11  declarant, who is not present and available for cross-12  examination.        We are substituting.
O',,            13              Now it seems as though you are using it with l                14  the same end in mind but for a little bit different purpose 15  to test Mr. Wicker's understanding, and the whole idea 16  expressed in that second paragraph evidently originated                        l!
17  with Mr. Wicker or his organization.            .
18              MR. MORRISON:        That is precisely the point, Your 1
(
19  Honor. The business records exception, were.this to 20  qualify as such, is to get that record into evidence itself.
I 21  it is not to allow its use to cross-examine another party                      i 22  ,with it.
23              It is the document itself that is allowed in
( ) "'          24  as the exception, and certainly there has been no substan-25  tiation that this is or is not a business record.                Those i
CoMMONWEAI.TH REPORTING COMPANY 17171 751 7190
                                                                        -  -~                      ~,
                -      -        ----- ~~ ~ -      --          -
 
                                                                                              *- 879'-
Ir73 are two entirely different things.
O s                  i 2              JUDGE CASEY :    He has already had it marked for 3    identification.      He is attempting to offer the document, 4
and what he is seeking from this witness apparently is 5    corroboration of what the document states.
6              MR. MORRISON:      That is precisely our objection.
                      <;  If he has a question as to Mr. Wicker's understanding of                -
8    what Mr. Wicker at TB&A was.doing at tte time, that e    is fine. That has nothing to do with this document.
m                The only purpose of bringing this document in ii can be to get tir. Wicker to try to corroborate this document 12    in some way.
is                The document is either admissible or not.          It has h 14    nothing to.do with Mr. Wicker's testimony.
15                JUDGE CASEY:    Mr. Wicker may not have to l
16    corroborate the document.        All he has to do is corroborate 17    the thoughts or the theory ecressed in the second paragraph i
l                    18    of that document as his understanding, his mission.
is                You may proceed.
20                MR. SHILOBOD:      Mr. Nicker, during the course of 21    that interview, do you recall conveying the following 22    impression; namely that "your work assignment was primarily" --
23              MR. liORRISON:      Objection. Again, this is my 24    objection.                                                        ,
25                MR. RUSSELL: I also have an obj.ection.          He is COMMONWEAL.TH REPORTING COMPANY (71P 781-7130
 
l l    ..
1r1[                                                                          880 Q,q  s 1  reading from the document, which it appears to me to be 2  objectionable.
l l                3              JUDGE CASEY:    I was hoping that he would paraphrase-4  the statement made in there, if that is possible.              "On or 5  about April 10, was it your understanding that your function 6  originally was this, but somehow it changed around at that 7  point in time to a concentration on" -- you know, words to a  that effect.
              . 9              MR. SHILOBOD:    Isn't it a fact that whenever yon 10  met with Mr. Smith on April 10, 1980, you indicated to him 11    that the purpose of your audit was to search out the benefits            .
12    of the consolidation?          .
O.            13              WITNESS WICKER:    I don.'t know how I can answer that.
14    You are asking me isn't it a fact that I did, and I think is    I made it quite clear that I don't have a clear recollection 16    nor do I have a record in front of me of that conversation.
17              MR. SHILOBOD:  Let me show you JARI Exhibit Number 18    4, and I would like you to read paragraph number 2.
19              MR. MORRISON:  I would note my continuing objection 20    to this.
21              JUDGE CASEY:  So noted.
22  ,
                          ,      (Witness perusing document.)
23              WITNESS WICKER:  Just the second paragraph?
i      d        24              MR. S11ILOBOD:  Yes.
25              WITNESS WICKER:  Is it permi,ssible to read the, COMMONWEALTH REPORTING COMPANY (7171 761 7150
 
Ir75                                                                            881 e              rest of the mero?                                                          g C                                                                                          W 2          MR. SIIILOECD:  We will get to that, Mr. Wicker, 3 as we go along.
4          JUDGE CASEY:    It is the cross-examiner's tool.            He 5 just wants you to concentrate on that second paragraph.
l              6          WITNESS WICKER:    Fine.
7          MR. SHILOBOD:    Have you read it?                            -
s          WITNESS WICKER:    Yes.
            ,  9          MR. SHILOBOD    !!ay I have it back?
10            (Document handed to Counsel Shilobod.)
11            (Document handed to witness by Counsel Fazzone.)
c            12          MR. SHILOBOD:    I don't think that is proper.
    ~
13          MR. FAZZONE:    It certainli.is proper, Mr. Shilobod.
14 It is my client. You just showed him a doument.
You took 15 it away from him, and he has every right to look at that 16 document when you are cross-examining him from it, and I 17 am going to insist fran my client's perspective that he has 18 that.
19          MR. SHILOBOD:    There is no reason to be emotional 20 about it.
21          MR. FAZZONE:    That is not emotional, and I don't 22 like,my comments interpreted by your observations.
23          JUDGE CASEY:    Gentlemen, point of order.            Since
  ''          24 it is happening right here and now, and nobody has had a                  g 25 chance to review it, in the interest of convenience, I will o
ccMMoNWEAL.TH REPORTING COMPANY 87171 781-7150
 
  , , ' Ir 7 5.'                                                                                        882 permit him to have this in front of him, and you may O.                      t 2
ask questions, and he may look at the matter and then 3
respond to your question.
MR. SHILOBOD:      Isn't it a fact that you indicated 4
5 to Mr. Smith that your primary function at that time was 6
to search out the benefits of the combination?
7                  WITNESS WICKER:        You are asking me a question which I really don't know how to respond to, and being under i
g  oath I want to be sure that what I saw is, in fact, correct.
10 I do not remember having a conversation with Mr.
11
                              ' Smith where I had told him that the single and sole objective 12 of the exercise from my perspective was to search out the
()'#                    g3  merits of it, the combination.              He may have interpreted 14 something from what I said that led him to that belief, 15 but I have certainly never seen our review as anything but is an objective third-party review on the part of the Commission 17 to determine what the plusses and the minuses of the company's 18    proposals were and to the extent that they benefited all 19    the ratepayers of Pennsylvania.
20                    I just -- I don't, understand how I can better 21    respond to that question.
MR. SKILOBOD:      Let me ask you this.        Do you 22            ,
l                          23    remember that meeting with Mr. Smith?
l NITNESS NICKER:        I think I previously indicated 24
!{}s-                            that it is at least highly probable that around, according 25 o
coMMoNWEAt.TM REPORTING COMPANY (717) 701 71SO
 
1r77                                                                                883 1
to this, 8:15 on Thursday, April 10 I met with other members 2
of my staff with Mr. fimith, yes.
3 MR. SHILOBOD:    Do you remember what was discussed 4
at that meeting?
3 WITNESS WICKER:    Again, I think I have indicated 6
that that was part of the process of collecting information 7
and that as part of that process it would be reasonable to                .
a expect that we would discuss the operations and organization
        ,    9 of Met-Ed, and to the extent that that information was 10 available, the proposal to combine the managements of the                          ,
l Pennsylvania companies; so I am sure that that was the 11 12 content of the meeting.
O                        liR. SHILOBOD:  I think you previously indicated a
W 13 14 to me that.you really didn't remember exactly what was 15 said in those meetings or what was discussed; is that                              >
18  correct?
17            WITNESS WICKER:    Over a period of several months,                    t 18  we had hundreds of interviews.      I don't know that I can --
;          19              MR. SHILOBOD:  That is precisely my point, sir.
20  You don't really remember everything that was discussed in 21  the meeting with Mr. Smith; is that correct?
22              WITNESS WICKER:    I'think I have already said that.
23              MR. SHILOBOD:  If Your Honor please, I am going 24  to introduce this document into evidence.            I request that        g 25  it be admitted into evidence as an exception to the hearsay COMMONWEALTH REPORTING COMPANY (7171 761 7150
 
l Ir78                                                                                                884      '
l rule.
() -                        2 1
Here is a record of a meeting when the witness l'
i 3    himself specifically does not recall what went in.                      We have 4    a business record of the company that does set forth the 5    discussion that did take place, and I move for its 6    introduction into the record.
7                MR. MORRISON:      I would object to it, Your Honor, 8    and I don't think that there is -- there certainly i sn't                            l 9    any foundation laid for its admission as a business record.
10    There is no demonstration that -- it is merely an assertion                          i 11    at this point that it is a business record.                      I suppose that 12    is up to a Met-Ed witness or GPU or Penelec, whoever                                :
rs                                                                                                            ;
13    prepared this document.
14                But Mr. Shilobod has nothing to substantiate 15    it as being a business record.                                                      -
16                JUDGE CASEY:    This is a Commission hearing, and                      :
17    we have to allow some latitude in the i,nterest of time.
18    What he could do in his portion of the case is subpoena                            ,
i 19    Mr. F. J. Smith of Met-Ed and call him as on cross-examination 20    as an adverse or hostile witness and authenticate this as                          .
21    a business record and as a writing of Mr. Smith made 22    cont.emporaneous with the meeting that was held on April 10, 23    1980.
e, l
24                MR. MORRISON:    Well, Your Honor, I don't wish
{%/
25    to imply that I feel that this is a business record.                      I feel COMMONWEAL.TM REPORTING COMPANY 171"A 791 7150
 
1r79                                                                                $$5 I  that it is in no way a business record exception.                I think itj              )
2  is blatant hearsay.
3              I think Your Honor just brought up another 4  potential exception, which would be past recollection recorded                          ,
5  but that, of course, would depend on whether Mr. Smith a  preg _ sed it under certain circumstances or not.
7            In terms of a business record, it is not a  something that is normally entered as a part of the day-to-day
            . 9    business of a company, such as books, hospital records, and to  that sort of thing, the normal business records.
11              This is, in fact, exactly the opposite, a memo 12  of a meeting which on its face indicates that it is same-v 13  thing other than a business record.
14            This is not a meeting that occurred as part of 15  the routine business of Met-Ed where you make an accounting 16  entry.
IT              So, to me, it looks like nothing but bald hearsay is  at this point, and there has been nothing demonstrated that 18 indicates that it is more than that.            We don't even have 20  Mr. Smith here.
21                                  I would agree with you if this was JUDGE CASEY:
22  my first day of presiding 'over this case and I had not 23  seen similar mcmos, which have already been offered into I (_
  ~
24  the record and received into evidence, which shows that therh 25  is an internal course of dealing or practice, and it may have l
l couwonwrai.rw arrearina courauy .7:n 7ei.7t so f                                                                                          . _ . . - . -      .
1        .                  ., - - .
 
  .      .-
* l 1r80                                                                                  '
880 i
only commenced with the Three Mile Island incident.
(])                :
f 2                But apparently the corporate executives of the 2    operating utilities and the holding company in the GPU 4    system have a practice of making a written record of 3    interviews with outside individuals or anybody at a meeting a  which deals in the overall sense with the operations of 7    the company in some way, shape or form.
s                We have a memo from tir. Kuhns.      We have a memo    ,
                  ,  9    from Mr. Dieckamp.        We have a memo from Mr. Conrad along 10    the same lines.
11                So it would seem to me that it is a standard es          12    operating procedure or it has.been over the past year.          So !
( )\s'            13    I would elect to treat it, although, I grant it, looking at l
14    it on its surface ,some time back I would have q'uestioned it, t
15    that it has nodshg to do with the operation of the company.        !
l is                But, in this context, in this atmosphere, it 17    apparently has a great deal to do with,it, and also it              :
18    qualifies as a briefing to other. officials within the I
19    company structure to keep them abreast of what is going on l
1                  20    with matters that concern them very deeply.
2.1                So I am going to treat it as a business record l                  22    .and ,a& nit it into evidence, although some of the material 23  may not be directly pertinent.          I don't know what he is i
l
().              24    going to do with it from this point forward.
25                                                  ,
I                                          COMMONWEALTH REPORTING COMPANY t7171 791 7130 l                                                            .
 
l 1
l 1r81                                                                        887 m                                              (Whereupon, the document marke 1
as JARI Exhibit No. 4 was 2
received in evidence.)
3 JUDGE CASEY:  Mr. Shilobod, before you ask the 4
next question or confer with Mr. McClaren -- in that second.
5 paragraph, which is not in the record, there is not only 6
a characterization by Mr. F. J. Smith as to what you may 7
have said or what you led him to believe with respect to the              l a
direction that management audit was now caking, but he has g  buttressed his statement by indicating that you were under to  expressed instructions from the PUC Bureau of Audits or the 11 Commission staff to change directions .and place most of 12 the emphasis on the management combination.          Would that is help to refresh your recollection; or were you contacted 14 on or before April 10, 1980 by a member of the Commission 15  staff and instructed to conduct the audit in the future is  along the lines that are discussed in that paragraph?
17              WITNESS WICKER:    My recollection is that as a ta  result of the company's announcement that they would plan 19  to combine operations of the Pennsylvania companies, we 20  were asked within the framework of our audit to review tha 21  proposal.
22              This meeting, which I can't absolutely guarantee 23 happened on this date at this time, but it seems reasonable v        24  that it would have happened, was part of the process of 25  that analysis.
l l
COMMONWEAL.TH REPORTING COMPANY (7171 761 7150
 
        'lr82*                                                                                                888-1              It seems to me in reading that first paragraph,.                      ;
2  that some people might wish to interpret that, the term 3  " geared to searching out the merits," and might imply that 4  we were not looking.for the demerits, if you will, but it S  could.also imply that that was the focus, to find out 6  whether, in fact, there were any merits to the proposal.
7              So while I don't think that this is probably a  an exact        replica of' the words that I used, I don't have l                          -  9  any fundamental problem with it within the framework that                          l 10  we have discussed and within the framework that this is 11  an interview summary, not prepared as'a document with the 12  intention of submitting it iru a' legal proceeding, and not n.
i s                            13  prepared as testimony, but prepared just as a memory jog, 14  if you will, of the, events that day 15 So the fact that it may or may not be an absolutely                    :
1 16  accurate reflection to me is not of great moment.
i 17 JUDGE CASEY:        I doubt whether.the JARI attorneys la  are preoccupied with the phraseology. which you have just                            I i
19  mentioned, "primarily geared to searching out the merits of l                              20  the proposed consolidation."                                                        i 21                                                                  did the accent, What they are concerned about is:                                        !
22  the basic mission in the audit, change from a general overview 23 of company management, or whatever it said in the early O"                            ''
o< r 11 aee-za ore "iz eio= ta e = r 1 9 re - "en                                                              = xt=e 25                                                                          That some comparisons with similar functions' of Penelec."
!                                                                                                                          1 l
COMMONWEAL.TM REPORTING COMPANY (7171 761 7150'                    l
                                                                                            ~
                                                                                                ..                        U 1
 
1
                                                                                  .              1 1r83                                                                              Sa9    ';
1, I  was the discussion initially.
2              "During the discussion    the interviewers indicated ll) iI l
3  that their work assignment was primarily geared to searching                    !
i 4  out the merits of the proposed consolidation."                                l; 5              So that is his characterization of the idea that 6  you conveyed to him.      What they want to know is whether 7  the total proposal, what you were supposed to do, what the '
8  Commission directed you to do, shifted shortly before 9  that point to a . concentration on the management combination 10  agreement.        .
11              WITNESS WICKER:    And I had thought that I had 12  answered that before, that as a result of the announcement wi 13 we were specifically requested to focus our efforts in the i
!            14  operational area on the proposal to combine the managements, 15  and while that was not, if you will, an exclusive exercise, l
16  as detailed in our report, it nevertheless was a primary 17  focus.                                    .
l                                                                                              '
18              JUDGE CASEY:  Now that you mention it, I do i
19  recall your testimony earlier this morning.that after the 20  announcement had been made by Mr. Kuhns, that someone at 21    the Commission, parhaps John Dial, said,    "Oh, we also want 22  .you.to look into this during the course of your audit."              Is 1
23  that when the subject first came up?
, r
    ~
24              WITNESS WICKER:    Tothebestofmyrecollection,2Bk 25              JUDGE CASEY:    You may continue, Mr. Shilobod.
COMMONWEALTH REPORTING CCMPANY (717 761-7150
 
Ir84                                                                                    390-          ;
i MR. SHILOBOD:    Let's assume for purposes of
(])                1 2      examination that the second paragraph is the way that you                        4 3      say it is, namely that you are going to search out the                          h; 4      merits or demerits of the consolidation.            That is what you            !
i 5      are saying that it means, isn't that correct?
6                        WITNESS WICKER:    That is what I would think that 7      I would have said to Mr. Smith on or around this time at a a      meeting.
9                        MR. SHILOBOD:    I would like to ask you this:    is            ,
i 10        that interpretati,on consistent with the very last paragraph i
11        on the last page, which says as follows,            "All of this was 12        discussed in the context of permitting all parties involved - .
        ) ss                                                                                                    l' i                    13        Company, TB&A and Commission -- to articulate the proposed.
14        changes in a logical, defendable and saleable manner."
l l                    15                        WITNESS WICKER:  I think it is perfectly consistent l 16        with that.        I don't understand why you would have a concern, 17        I would think that as representatives of the Commission, we is        would want to ensure that any pr.oposal was logical, was 19        defendable, and was -          " saleable" may not be a particularly 20        good term, but understandable and acceptable to the parties 21        involved.
l l                    22            ,
                                              -That does not mean, nor does that say here that 23      we had any intention of doing anything to their proposal,-
()      .        24        and out of that ensuring that whatever their final proposal 25        was, that it was a logical, defendable, and, if you will, l
COMMONWEAL.TM REPORTING COMPANY (7th 7617150
          = --- -      . .        ._:                          - - - .
                                                                              . =                    _ . . .
 
Ir85                                                                                                  891
    ''                I      saleable proposal.                                                                ggg t
2                        MR. SHILOBOD:      Is that function something that 3      you see as part of your job in carrying out a management
  ~
4      audit to produce a logical, defendable and~ saleable proposal 5      for a company that the Commission -
6                        WITNESS WICKER:      I think we are confused here.          I 7      think our job as independent consultants employed by the                        -
8      Commission to review the company's operations is to produce 9      a logical, defensible and fair representation of the operations 10      of the company, and that is what I believe we have done in                            i 11      the exhibit which we have submitted this morning.
12                        To the extent that their proposal is or is not                      i C
13      those things is not in my opinion my responsibility.                  However, 14      it is my responsibility to reflect on their proposal in a 15      fair, reasonable and objective fashion.                                                ,
i 16                          MR. SHILOBOD:      You are indicating that you did                  !
17      present a logical and defendable result; is that correct?                              l l
18                          WITNESS WICKER:      I believe that we have made                    l l
19      our case quite clear in the submission that we made this                                j 20      morning and our report.
i 21                          MR. SHILOBCD:    I would like you to refer to                      ;
22      Roman Numeral 11-0 of the management audit report.
23                        By the way, before we refer to that, when did
    -                24      youreceiveinformationindicatingthatthepotentialsavingllh 25      were $18 million per year?                          ,
COMMONWEAL.TH REPoRPNG COMPANY (7171 761 7130
 
r                                  .
1r86                                                                          892 ,
i l
WITNESS WICKER:    It is a guess on my part, but
(])                1 2  I would say somewhere -- there were indications in the 3  original Blue Book, which was submitted on March 26, that 4  subsequent revisions of that book had different amounts s  of information in them.
s            I think the first time that the S18 million as 7  a specifi6 number was referenced, in my recollection, it was a prior to the June 26 meeting, so I would say somewhere in            ,
l                                .
9 the middle of June. That would be my recollection.                ;
                                                                                              .i
  .                to            MR. SHILOBOD:    So you got the first indication          i I
11  of the $18 million savings in the middle of June?
i 12            WITNESS WICKER:    You see, you are trying to
()t                13  distinguish between the first indication of the $18 million l
l 14  savings and any-indication of savings.                                !
15            What I am suggesting is that the S18 million is            l 16  a number which was arrived at as a process of developing 17 the proposal and was, if you will, finalized, although I              ,
18  am not in that sense sure that " final" is the correct                ,
19  characterization of it, but finalized somewhere in the middle i
i
                    .o  of June.
l 21            In the original Blue Book, as of March 26, there 22  were savings that were identified. -
23            MR. SHILOBOD:    There were never savings on the
()'                2+ order of S18 million though in any of these Blue Books or 25  its revisions?                            ,
COMMONWEALTH REPORTING COMPANY #71"A 761-7150
 
Ir87                                                                          891 1
WITNESS WICKER:    My recollection is that in the 2  original Blue Book, there were references to some of the 3
savings-that would occur as a result both of the consolidation 4
combination, btit' at that time they were expressed more in 3
terms of personnel relocations rather than in terms of 6
dollar Savings.
7              In other words, my recollect!.on is that there          -
a  was a discussion.
            ~
g              MR. SHILOBOD:    And those discussions indicated to    that there would be approximately a S1 million expense 11    in the first year with a S300,000 gain in the second and i
12    third year and a $700,000 gain in the fourth year.          Isn't s-13    that the order of magnitude of the savings that were shown 14    in those books?
15              WITNESS WICKER:    If I am interpreting what you is    are looking at there, you are looking'at a section of the 17  Blue Book, and I don't think that that is necessarily is reflective of all of the information that was presented at l
l            19  that time.                                                                i 20              MR. SHILOBOD:    Is there an indication of $18
,              21  million in that book?
l 22            WITNESS WICKER:    I think that I have been cuite 23 clear, but, to the best of my knowledge, there was no
  ~>          24  indication of S18 million in that book.
n              There was an indication of o,ther savings other than            -
COMMoNWEAI.TH REPORTING COMPANY (71M 7617150
 
s.
    .c          .
Ir88                                                                                                        894          ,
I  that, which is presented within the document that I think
(]) ~'
2  you just referred to.                                                                        j 3            MR. SHILOBOD:      Were there quantifications o#
4          g savings 'reater    than $700',000 per year?
5            WITNESS WICKER:      Again, I think I indicated that I
there were quantifications of people reductions that might
(                                  e 7  be experienced as a result of these moves, which, to the i
I a  best of my recollection, were not quantified in terms of
                                . 9  dollars saved.                                                                                !
i 10              MR. SHILOBOD:    So, in the middle of Juna, you                                  j 11  saw the first quantification on the order of the ;13 m)llion;
          <-                      12  is that correct?                  ,
'(#ls.                            13              WITNESS WICKER:      No, that is not correct.              In the i
14  middle of June, at,least from your statement, I deduced that                                  l 15  it was the first time that I have ever seen any other numbers 16  other than the ones that are contained in that book.
l                                  17              My recollection is that around the middle of June, la  the S18 million suddenly became the magic number.
19              MR. SHILOBOD:    That is what I am indicating.                      Noa 20  when did you prepare this preliminary report to the Public 21  Utility Commission?
22              WITNESS WICKER:      June 24, 19 -- a day or two before 23 we gave the presentation.        It is not exactly an extensive l
()-                              24 report.
25              MR. SIIILOBOD:    Between the niiddle of June and when COMMONWEAL.TH REPORTING COMPANY (7171 761 7150 w  -- - +-                              _
7-.
 
l I
Ir89 895 l
I  you prepared this report, did you do any investigation            lll 2  into the validity of the S18 million savings?
3            WITNESS WICKER:    From March 26, we were in the i
4  process of refining, reviewing and analyzing the proposal              l 1
I 5  that the company had made and were trying to identify and s  assess the benefits.'both quantitative and qualitative, y  that would result from the proposal.      So we were doing that a  on an ongoing basis.                                                  .
      . 9          MR. SHILOBOD:    This quantification of coming up            ,
i 10  with -- let me use the term " magic S18 million" -- and I i
11  don't mean any connotation for that -- for coming up with              ,!
  ,    12  this specific figure, that production of that figure was O      13  a GPU production, was it not?                                      Ol  i 14            WITNESS WICKER:    Yes, it was.
15            MR. SHILOBOD:    That wasn't a TB&A production?
16            WITNESS WICKER:    That is correct.                          $
17            MR. SHILOBOD:    And up until that point in time,              ;
i 18  y,ou were undertaking to provide input to GPU and its                    j i
19  subsidiaries with respect to changing the organizationa,1 20  structure and changing a      number of other things in that 21 planned combination, were you not?
22      ,      WITNESS WICKER:    I can agree with that.
23            MR. SHILOBOD:  Whenever you made your presentation 24 to the Commission in late June, you would agree that, in M  essence, you endorsed the concept of the management CoMMCNWEALTH REPORTING COMPANY 17 t71 761 71 SO
 
1r90                                                                                                    896-0;'                            I    co dia eioa            1 = e ta e true2
;                                2                        WITNESS WICKER:      That is correct.
3                        MR. SHILOBOD:    Was the S18 million factor 4    important to you then?                                                          i i
5                        WITNESS WICKER:      Yes, I would have to say that.        I 8    it was a factor, but I don't think that it is, at least 7    to me, as important as it appears to be to you.                                .
8 Our process was not one of trying to find out 8
what the potential dollar savings were, but to try to 10    determine what would be the most appropriate organizational i
11    configuration for the GPU operations in Pennsylvania.                            <
12                        Having done that and having looked at the
: v.  '
13    qualitative and quantitative benefits that would flow from ~                    l; l
i                                                                                                                        !
14    that proceis, we were willing to sign off, if you will, that                    '
15
                                        $18 million was a reasonable expectation in addition to the 16 significant qualitative benefits which the company could 17 j                                      expect and its ratepayers could expect-as a result of this la combination.                                      -
19 MR. SHILOBOD:    Do you think the Commission in l
20 June, whenever they heard your presentations, had any 21 conception that the management combination itself would 22 actually produce $1.2 mill' ion a year if we ignore the 23 divisional reorganization?
24 MR. MORRISON:    Objection as to what he thinks the 25 Commission thought.                                          ,
l cOMMONWEAI.TH REPORTING COMPANY 87171 791 7150
                                                                              ' ' ~ ~ ~ ~            ' ' ' ~            -
                                    . _ _ . Z--- C ' T -*
          -' - ~
                        ._ , -_r                                    _                        . _ _ .          -
 
i Ir91                                                                                897 'l  '
JUDGE CASEY:      I would have to sustain that.
C        '
2  ,
MR. SHILOBOD:          I was asking his sense of the e      ,
3 meeting in which he participated, Your Honor.
4 JUDGE CASEY:      I don't see how he could -- I don't 5
want her to read back the question.                I missed part of that.
6                MR. RUSSELL:      Would you repeat it, please?
q                JUDGE CASEY:      Would you repeat your question?
s      If not, I will ask the stenographer to read it back.
        ,  9                MR. SHILOBOD:          I asked him whenever he was at i
10      the meeting before the Commission and made his presentation                      ;
11 on or about June 27, 1980, whether or not he got the 12      impression that there was any, thing there presented to the O      13 Commission that would have conveyed to it the idea that                        b
{        14      the management combination in and of itself would produca                          .
l 15      actual expenses in the first year and a modest savings over                        i 16      the next three or four years on the order of $300,000 to 17    $700,000 per year.                                ,
18                MR. MORRISON:          Mr. Wicker is not offered as a                    !
i 19      psychic. He cannot testify as to what they thought.                              I 20                  MR. SHILOBOD:        I asked him if there was any 21      information that was presented at that time.
22    ,
JUDGE CASEY:        You can ask him whether his 23    organization presented any information, but you can't ask
: f. .
s/      24      him what the Commission's prior knowledge or subjective 25      feelings were.
1 COMMONWEAL.TH REPORTING COMPANY (71*h 7617150
(                                                                      . ,                              __
 
Ir92                                                                            998  .
I O            1            MR. SHILOBOD:    Did you present any such information l
2  to the Commission?                                                        !
3            WITNESS WICKER:    To the best of my recollection, 4  the only quantitative benefit which was part of our 5  presentation was an endorsement of the potential $18 million:
6  which we feel the company has an excellent chance of 7  achieving given that it conducts itself in the way- that 8  we have outlined in our report.
I
            . 9            MR. SHILOBOD:    Now on II-9 of the TB&A Report, i
10  the last sentence in the first paragraph says this:            "The 11  Company has publicly committed itself to attain S18 million 12  of annualized cost savings and cost avoidance through the
(]}
13  management combination without impairing the level of service 14  delivered by Met-Ed and Penelec."
15              IPause.)                                                        ,
is              JUDGE CASEY:  Are you perhaps suggesting that that            {
17  might be a misstatement because it simgly says " management l
l              18  combination" and makes no reference to the division 19  reorganization plan, which would also make up part of the 20  $18 million of cost avoidance and cost savings?            Is that l
21  what you are pointed toward?
l              22      .      MR. SHILOBOD:    I don't know if it is a misstatement 23  or whether that was an intentional statement.          I don't know
      "        24  how it is, and I wouldn't want to characterize it; at this 25  time.                                      ,
COMMONWEAL.TH REPORTING COMPANY (7171 761 7150
 
ir93                                                                            899                  !
                                                                                                        \
g WITNESS WICKER:    Is there a question on the table?
2                MR. MESSER:  Be patient.
3 MR. SHILOBOD:    No. As I am looking here, Mr.
4 Wicker, isn't it a fact that in your report, you indicated 5
that whether or not the division reorganization should 6
proceed, it is going to require additional study?
MR. MORRISON:    Excuse me. Where are you?
7 g                MR. SHILOBOD:    I am looking for it now.          Is that
                                                                                                  'l i
g  within your report; do yea recall that?
WITNESS WICKER:    I'm sorry. Would you repeat the 10 11    question?
12                MR. SHILOBOD:    Let',s. refer to Roman Numeral VI-18,                i to start with. The first full paragraph states this:            "Whil 13 14 the intention to assess the division organizations and i
15    configuration    is appropriate, efforts to date are insufficient 16    to actually proceed with a consolidation."
l 17              If the Commission were to read that sentence                            i 18    in conjunction with the statement in Roman Nitmeral II-9, l
19    what impression do you think that it would have with respecr l
20    to the savings to arise out of the management combination?                          ,
i 21              MR. MORRISON:    Objection. He can't testify as                    l l
6 22    to the Commission's impression.                                                    l-1        23 ;              MR. SHILOBOD:    What impression were you attempting                    ''
  ~
24    to convey with 4 hat?                                                      lll '
25                MR. MORRISON:    Objection to the use of the word 1
COMMONWEAL.TH REPORTING COMPANY 47171 761 7150
 
)
Ir94                                                                          900    .
l
()              i  " impression."
t 2              If he has a question about a document which speaks 3  for itself, that is fine. If he has a question asout the            j l                    state of Mr. Wicker's mind, it is quite a different matter.
4 5              JUDGE CASEY:  The question asked of the witness 6  indicates a possible internal inconsistency in the audit l
7  report.                                                                  j a              The paragraph that was just read on VI-18 when
        .    . 9  compared with the statement which appears where?
10              MR. SHILOBOD:  I -9, in the last sentence in the 11  first paragraph.                                                        ,'
r s .-        12              JUDGE CASEY:  You can ask the witness whether x_                                                                                      i
!                13  that is not a contradiction or whether he -- doesn't he                  i 14  feel that that might confuse or deceive the Commission in                .
I                15  some way.
1 16              MR. SHILOBOD:  The testimony was that TB&A' 17  saw its responsibility to produce a study that was defendable, is  that was saleable, and so forth,.and I would like to test 19  that, just what was being attempted to be presented to the 20  Commission through this report with these at least apparent 21  inconsistencies.
22              Do you see any inconsistency in those two,        :'r.,
1 l                23 Wicker?
  '              24            WITNESS WICKER:  If I were asked to rewrite this 25 report -- and I sincerely hope I never,have to do that -- ht:
COMMONWEAL.TH REPORTING cQMPANY (7f 7 7617150
 
                                                                                      '        l 1r95                                                                            901      jl 1  if I were, thenIwouldprobablyadd,baseduponyourcommentggg i
2  in that first paragraph on II-9, cost savings and cost 3  avoidance through the management combination and divisional i
4  consolidation without impairing the level of service.                        !
5              However, you appreciate that this is a se mary I                  -
              . document, and, as far as I can see, that distinction is l
t 6
7  very clearly made in here.        It is separately addressed with a  a heading called, "The Management Combination."              There is 9  a. separate heading called, "The Consolidation of Divisions."
i io  The savings are clearly identified as being cost avoidance 11  and cost savings.
12              I don't want to be overly defensive about a product 13 that I sweated over for a number of weeks, but I could 14  agree that .it perhaps would be more clear if the term "and is  consolidation" were included on II-9.          But I have more              ,
i 16  confidence in the competency of the Commission than to 17  believe that they would be misled by that apparent omission.
1                                                                                              ,
la              MR. SHILOBOD:    Was there ever a distinction drawn 19  before the Commission specifically segregating out the 20    savings from the management combination as opposed to the i
i          21  reorganization?
(
22              WITNESS WICKER:      Your colleague this morning l                    ,
l          23  in cross-examination referenced me, as I recall, to section
    '      24  VI-18 and went through an exercise of questioning the                llh 25  statement which is in the second paragraph of VI-18, which i                                CoMMCNWEAL.TH REPORTING COMPANY (717 781-7150 l
 
Ir96                                                                      902 clearly says, "The opportunities for. achieving cost savings
(" } -        g 2 through consolidation are substantial and in fact represented 3 the bulk of the savings associated with the combination as i originally proposed by GPU management."        So I think we 5 discussed that at length this morning.
6            MR. SHILOBOD:  Other than~that sentence, is.there l
7 any quantification that the Commission could utilize tc 8 evaluate the difference between the division reorganization
            ,  9 and management consolidation?                                    ,
10            WITNESS WICKER:    To be honest, I am not clear it what you would expect.
12            JUDGE CASEY:  I think we have to bear in mind, CD          13 Mr. Shilobod, that the Commission has this report, .but it 14 also ordered hearings, and we have had extensive testimony is in this record which the Commission will ultimately be                ,
16 interested in when I get finished with my task, and at 17 that time there will be a breakdown and a quantification is couched. on Mr. Verrochi's and Mr,. Donofrio's testimony.
19 They explained it at some length; and I think this group            .
l 20 simply has endorsed that because they reviewed it, and they l
\
l              21 don't have any quarrel with it.      They don't see any flies      j t
I              22 in the ointment, so to speak, with what the comoany has i
23 presented.                                                          l
( )-1        24            MR. SHILOBOD-  Mr. Wicker, as I read your report, i
25 my perception is that you reviewed this problem as an overall COMMONWEALTt+ REPORTING COMPANY 4717' 761 7150
 
l Ir97                                                                    903 Problem. Would that be a fair statament?
[        1 2              WITNESS WICKER:    It might be fair, but I am afraid 3  I don't understand it.
4              MR. SHILOBOD:    In essence, you viewed the interest 5    that yon should be looking at in your report from the 6  Standpoint of the interest of GPU and its subsidiary companies 7  rather than making a review for each individual company's a  standpoint; am I right or wrong on that?
            . 9              WITNESS WICKER:    Our charge was from the to  Pennsylvania Public Utility Commission through their agents, 11    the Bureau of Audits, to review the proposal for the 12  combination of the Pennsylvania companies of .GPU.                lll 13              We reviewed their proposal. We looked at it from 14    a number of different standpoints.      We did not attempt to i
15  put ourselves in the position of any one company.      We l
l            16    attempted to review 'it from the standpoint of what would 17  serve the best interests of the ratepayers of Pennsylvania, 18    which the Commission is charged with protecting.
19              MR. SHILOBOD:    But that was done from a companywide 20    standpoint, not by individual companies, I think you indicated 21  in your answer. Am I correct in my assumption?
l            22  ,
                        ,    WITNESS NICKER:    Largely so, but I think it is 23  perhaps an oversimplification to assume that we did not 1
(
24  look at the implications for each separate company as opposed j
25  to -- because that is the way they ope, rate now.
 
I 1r48                                                                                                      904 .
.                                                                                                                                    ll t l i  ,
I
( ) ^'                              1 So to the extent that the combination is a benefit, l 1
2            it is a benefit to both the independent companies as opposed                      l 3            to their current operation, and there are certain areas                          l 4          where we believe Metropolitan Edison will benefit by                              .
5            association with Penelec, and there are certain areas where 6            we believe Pennsylvania Electric will benefit through a 7            closer association with Metropolitan Edison.
8                                  MR. SHILOBOD:      In carrying out your study, you 9            adopted a series of evaluative criteria, did you not?                            -
10                                  WITNESS WICKER:      Yes, we certainly did.                j 11                                  MR. SHILOBOD:      Why did you take that approach?
12                                  WITNESS WICKER:      I am not aware of any other O_'
13              sound professional approach to reviewing any proposal other                      l l
14              than to determine a set of criterion against which to 15            measure that proposal and evaluate it, and for the purposes 16            of the individuals reading this report, we attempted to 17              provide a brief summary of what our evgluative criteria                            ,
18              was so that they would have an appreciation of what the                          !
18              process was that we went through, and that is contained in 20              our report.
21                                  MR. SHILOBOD:      What evaluative criteria did you 22          . adopt to measure the negative aspects of the consolidation?
23                                WITNESS WICKER:      I think if you will reference 24              the evaluative criteria, which are listed on page VI-2 and 25 VI-3,              they speak for themselves, particularly on COMMONWEAL 7H REPORTING COMPANY 17t 71 761 7150
 
Ir99                                                                        905 1  VI- 3, . "In evaluating the proposed organization," those 2  questions were depending upon the degree to which the 3  questions were to be positively or negatively answered; i
4  they indicate the degree to which there is or is not a                    i 5  benefit or a disadvantage to the proposal.
6            'MR . SEILOBOD:  Do you agree that the adoption 7  of the evaluative criteria establishes the approach to                      .
a  which you have analyzed the problem?
      . 9              WITNESS WICKER:    The adoption of the evaluacive --
10  laying out the evaluative criteria was part of our approach 11  to trying to assess this proposal-, yes.                                    ;
12            MR. SHILOBOD:    But there was no specific evaluativ          g
: s.                                                                                      :
l 13  criteria to say, "All right, you want to measure the                        t l                                                                                        l 14  negative aspects, and.these'are the evaluative criteria
(        15  we will use"?    There was no adoption of that type of 16  criteria outside of what is shown on Roman Numeral VI-2 and 17  VI-3; a1 I correct?                        .
l l        18            WITNESS WICKER:    Well, you see, you are making 19  a distinction which unfortunately I can't make; there is l
l 20  somehow a difference between the positive and negative 1
1 21  impacts of a given proposal.
22      .      L'st's take the i'ssue of customer service.          Any l        23 change to the way that any company performs its functions 24 with either have a positive or a negative impact on its O
25 current customer service level, so you, don't adopt a different CoMMONWEAt.TM REPORTING COMPANY t 7t75 761 7130
 
l Ir100. '                                                        ,
906        l 1,
()^                    1  criteria to look at that.            You look at that as an issue,-and          ,
i 2  you say, "IIere is what they are going to do.              Is it going            ;
i j
3  to have a positive or a negative impace?"
4                These are not intended to be positive criteria 5  any more than we could have made a list of negative criteria.
I 6                MR. SHILOBOD:        How did you measure the importance 7  of the management combination against the risk of bankruptcy t
a  for Met-Ed'                                                                      f 9                WITNESS WICKER:        I think we discussed this morning            5 i
i 10  that the issue of financial viability of the corporation 11  was not one that I personally was directly responsible for.
To the best of my knowledge and belief, the
(_
12 i
13  resulting management combination has little or no impact 14  on the financial structure of the combined companies and that                      i 15  it makes no difference to the way they operate right now,                          {
16  and I see myself no reason to suppose that the combination i
17  would have any impact on bankruptcy.            ,
18                MR. SHILOBOD:        Then if.I understand your answer 19  right, what you are telling me is that insofar as the 20  study of what effects a management combination would have in 21  the event that Met-Ed went bankrupt, there was never a 22  . specific study of that specific issue by you; is that correct?
23                WITNESS WICKER:        That is, again, largely correct s-                  24  except to say that again the study of bankruptcy was 25  performed by an individual who has considerable experience COMMONWEALTH REPORTING COMPANY 671P ' 761 7150
 
                                                                            .    .  ,l 1r101                                                                    907            ;
gm    g in that area and who was also involved in reviewing the ll(
2  organizational implications from a standpoint of the i
3 finance organization because he happens to be a certified                i 4
public accountadt and again has significant experience in 5
the organization of financial operations.
6 Insofar as he was involved in it to a degree, I 7  think that that process was carried out; but, no, there was I
8 not a specific evaulation separate from what is contained                  ;
9  in this document.
10            MR. SHILOBOD:  I see. Wasn't that important?                t i
11            WITNESS WICKER:    Given that there don't appear to 12  be implications of it, no, I don' t think it is terribly 13  important.
14            JUDGE CASEY:  No implications of bankruptcy, you                ;
i 15  say?
16            WITNESS WICKER:    No implications that this would 17  have a negative or positive effect on this.,
As far as I i
ts  am concerned, that is a totally separate and different 19  issue,. and it does not relate to this subject.
20            MR. SHILOBOD:  What evaluative criteria did you 21  utilize to specifically measure whether or not that conclusion i
22  that you just made was valid?
23            WITNESS WICKER:    Again, if you are going t0 start 24 getting into the details of the financial assessment which w            I 25 made of these companies, I think it is only reasonable for COMMONWEAL.TH REPORTING COMPANY .7171 761-7150
 
1rl'd2                                                                        908
                                                        ~
g me to turn it over to Mr. Wheaton, who had responsibility 2 for that function, which I did not.
3            MR. SHILOBOD:    Did Mr. Wheaton make a study 4  of the contingencies of what would happen in the event of 5  bankruptcy if the management combination is completed?
i s            WITNESS WICKER:      I think that you would want to
[
7  address that question to Mr. Wheaton.                              -
3            MR. SHILOBOD:    Did you, Mr. Wheaton?
c I
9            WITNESS WHEATON:      Would you repeat the question,      4!
10  please?
11            MR. SHILOBOD:    Did you make a specific study of what I
12  would be done in the event that there was a Met-Ed bankruptcy O-              13  and the management combination had been completed?                      l 14            WITNESS WHEATON:      In that context, no, but let          !
1 First, as Mr. Wicker 15  me tell you precisely what we did.                                  ll l                16  has attested to, the question was making a determination i
17  as to whether we were talking about a management combination    i
* i 18  or a merger.                                                            l i
19            Having had considerable experience in looking at          ,
l                                                                                            ?
l                20  other holding company organizations, including those which          ;
21  have gone through similar management' combinations and are              !
i.
22  functioning in that context, we were satisfied that in                  l 23 terms of the financial and legal process that Met-Ed and                ;
24  Penelec is proposing to go through in terms of their i
25  management combination, that, in fact, there were no legal            *!
COMMONWEAL.TH REPORTING COMPANY (7tM 7617150
                          - - _.- := . . : .-  - - -      --      - - - -
 
Ir103                                                                              909 1  or financial implications to the merger with the exception              lll 2  that it was important that Met-Ed and Penelec have the 3  capabilities to account for the various financial transactions 4  that would be required to keep the integrity of the legal 5  organizations that exist, i.e. Met-Ed and Penelee.
6              In that context, a great deal of our report 7  and a great deal of our study was directed toward the entire a  question of potential bankruptcies of Met-Ed/Penelec.              That
            ,  9 is included in Chapter III of this report and summarized in 10  Chapter II of the report.
11              In that context, there is absolutely no question 12  in my mind that'the financial. future -- the financial 13  viability of Met-Ed and Penelee are intertwined; i.e.,
9 14  if we have one company going under', it is very likely that 15  the domino effect will take place and the other company I
16  will also suffer a bankruptcy.
17              MR. SHILOBOD:    You said that ,there is no legal 18  or financial implication to bankruptcy.              Did you make any 19  study to decide --
20              WITNESS WHEATON:    I don't think I said that.                  ;
                                                            ~
There is no 1egal or financial                i 21            MR. SHILOBOD:
l l                                                                                              ,
22  implication to Penelec in the event of bankruptcy of                        i 23 Met-Ed; is that what you said?                                              :.
  %-          24            WITNESS WHEATON:    I don' t think so.
25            JUDGE CASEY:    He didn't say that.        He said that in    !'
l                                  COMMONWEAL.TM REPORTING COMPAfW 67171 761 7130              ,
l      --.        _    ._-  __      _ _ _      - _ _ _    _ _ _          . _  ..
 
1T10 4,-                                                                          910 s    1 the management combination of the two, there were no 2  legal or financial implications apparently because, as 3  he prefaced his remark, there was no true merger, no 4  combining of assets, that the      companies would somehow 5  retain their separate identities after the management 6  combination is in place.
7              MR. SHILOBOD:    If there was a bankruptcy at                              -
8  Met-Ed, would there be management implications for Penelec,
                                                                                                            ?
            ,  9  if there was a combination of managements?                                              ,
10              WITHESS WHEATON:    I think now we are getting into 11    the area of speculation, and the respective Commissions of 12  New Jersey and Pennsylvania have spent a great deal of time                              p 13    in speculating in terms of what would happen in the event 14    of a bankruptcy, and for me to speculate in terms of 15    precisely what events would take place would be inappropriate.
16                We have certainly made evident in the report that                            !
i 17    there are interrelationships, financial interrelationships,                              i i
18    and it would be a reasonable estimate on our part that                                  ;
19    the bankruptcy of any one of the operating companies would I
20    have severe financial implications and therefore management 21    implications in .the other operating companies.
22        ,
MR. SHILOBOD:  Did you understand the concept 23    of piercing the corporate. veil?
24              WITNESS WHEATON:    I used the term this morning 25    myself.
o COMMONWEALTH REPoR71NG COMPANY (7171 761 71SO
. - - . .        ~
 
l 1:105                                                                          911 1              JUDGE CASEY:    He used the term, as I recall, yes.      g 2              WITNESS WHEATON:    From a layman's perspeetive 3  and not a lawyer's perspective, so        I. may be somewhat            j i
4  deficient in saying yes, that I understand that.                        t 5              MR. SHILOBOD:    Understanding that you are not a 6  lawyer and I am not going to ask you for legal conclusions, 7  what is your understanding of the piercing of the corporate a  veil?
9            MR. RUSSELL:    I'm sorry; I can't hear you, Mr.
10  Shilobod.
I 11              MR. SHILOBOD:    I asked him what his understanding 12  was of the concept of piercing the corporate veil.                        .
13              WITNESS WHEATON:    Piercing the corporate veil; 14  we have a legal ent,ity, and one looks through the legal                  j 15  entity to see what, in effect, is really happening in terms of ~
16  a de facto situation, operating situation.
17              MR. SHILOBOD:  When you said ,that there would be            l 1
18  a domino effect if Met-Ed went bankruptcy, is that your                    j i
19 concept of what would happen?        Is that what you were 20  referring to with a domino effect?
21              WITNESS WHEATON:    I think what I said was that 22  there was a strong possibility that the financial collapse, 23  if you will, bankruptcy of one of the companies would in 24  and of itself spread to the other companies.
25              MR. SHILOBOD:    Is that becau,se of this concept of CoMMoNWEAt.TM REPORTING COMPANY (71 7 761 7150
 
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1
(()              1  piercing the corpocate veil; is that why you said that?            l 2            WITNESS WEEATON:    No, I think it has to do with l
3  the actual financial situation and the intertwining of the 4  two companies.      For example, the stock of Penelec'and Met-Ed i
s  both have been provided as collateral in the revolving credit            l 1
j 6  agreement.
l l
7            MR. SHILOBOD:    Supposing that neither Met-Ed nor l
i                8  Penelec went bankrupt, but GPU did, so that there was some              ,
                                                                                        ,1 l            ,  9  danger that occurred as to the ownership of the stock.        Is    i l              10  that what you are saying is the negative impact of bankruptcy?
11            WITNESS WHEATON:    I am sorry; I don't understand the i
_s        12  question.
r 13            MR. RUSSELL:    I don't understand the question. If 14  GPU went bankrupt and then what?
15            MR. SHILOBOD:    As I understood your last answer to 16  me, the reason we are talking about a domino effect is because 17  of the common ownership of stock; isn't that correct?                l l
18            JUDGE CASEY:    Wait a minute. Your last question, 1
1 1
l              19  your hypothetical, assumes stated facts.      It is not exactly I
0  in line with his last answer.      I think what he said was that      i j
21  the stock of both corporations under'the revolving credit            !
i 22  . agreement has been pledged or hypothecated as collateral 23  security for the loans, but in the event that one of the l(              24  sister Pennsylvania utilities went bankrupt, the loans could 25  be called. I don't know after bankruptcy whether you would COMMONWEALTH REPORTING COMPANY (7171 761 7130
 
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* 1  get into creditors' rights and so forth.
2              But the effect of his answer was that it would 3  prejudice the other corporation if that event developed.
4              MR. SHILOBOD:  What it would do is change the 5  ownership of Penelec stock; isn't that what you are saying?
6              WITNESS WHEATON:  I don't think so. I den't think 7  I said that at all.
8              MR. SUILOBOD:  Then can you tell me what is the        i
      '  8  importance of the fact that Penelec stock was pledged as 10  collateral?    If there is a default, if there is a bankruptcy, 11  what is going to happen to the Penelec stock that was pledged?
v 12              WITNESS WHEATON:  I don't know.                    hl 13              MR. SHILOBOD:  Then can you tell me specifically 14  how the bankruptcy-of Met-Ed would bankrupt Penelec?
15              MR. MORRISON: Your Honor, I think I object to this 18  generally in that we are getting far afield from the two issuesl 17  which we are concerned with in this preceeding.      I think we I8  have gone on for some time about bankruptcy. We are moving 19 further from the issues.
20                            I am inclined to agree, but on one        !
JUDGE CASEY:                                            :
21 point I think Mr. Wheaton said that in the past in conducting 22  audits, he was experienced with management combinations with        ;
          '3 other companies, other utilities holding company situations
  .'      24  I think the question he probably should have been asked was 25  whether he had ever given consideration under a hypothetical CoMMONWEALTM REPORTING ch 6713 %C17130
 
  '' pli                                                                          914 O-  -
1  set of circumstances, forgetting about Met-Ed and Penelec and 2    GPU, but what wo'lld happen if one of those companies which 3    are not merged, shich are simply run by management ccabinations, 4    went under; what would the man'agement combination structure 5    produce? What would be the effect, if he knows?          Would the 6    court, for instance, under the new act, debtor in possession, 7  for instance, nake the officers and directors concentrate 8  on reorganizing that one sick company to the detriment of 9  the remaining companies?
10                He may get into his domino effect again; I don't 11    know.
Eave you ever considered such questions in terms
(}            12 13    of your auditing practices, Mr. Wheaton, in the past, in 14 your experience?      ,
15 WITNES.i WHEATON:  Presumably if one of the operating 18    ccmpanies were to go bankrupt, we believe from all of the 17 evidence that we have seen it is the li.kelihood that the 18 other operating companies would.also move into a state of 19 bankruptcy..
20                The concept of exactly what the debtor in possession
              'l or whoever it might be, what actions he might take and what 22  1.the court might take, is tgain pure conjecture on the part of
                '3 anyone because I don't think that anybody really knows 24 exactly what would happen there.
i 25 However, I would think that,the question that      seems >
coWNWGl.TH REPORTING COMPANY (713 768 7150            f
 
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I i
O        1    to me pertinent to the questions that we are asking: would u
2    the management combination that is projected or put on the                        l I
l 3    table here have any impact one way or another in terms of 4    whether there was a bankruptcy or not - and I think the 5    answer is that at least from our judgment and at least giving-6    that some consideration, it is '; hat there would be Io impact, 7    if you will.
8                    MR. SHILOBOD:    And I am testing thosa conclusions.                  j
        - 9      You said from all of the evidence that you saw you concluded                        .
i 1
10      that if one went bankrupt the other one would also.                  What 11      evidence are you talking about?
    -      12                    MR. RUSSELL:    Would pou clarify the situation?                      .
Were you talking about the present situation or the post-13 14      management"combinat. ion situation?                                                  ,
1 i
13                    I4R. SHILOBOL,:  I am talking about the evidence                      i IS      that he saw which enabled him to make that conclusion.                              .
17                    JUDGE CASEY:    The conclusion as to what?                              I 18                    MR. SHILOBOD:    He just said that his statement was                    !
I 19      that from all of the evidence that we saw, we concluded that t
20        if one of these companies would go bankrupt the other one would 21      go. That was his statement.
i 22            ,      WITNESS WHEATONi    I think I said there was a 23      likelihood. I would refer you to Chapter III in our management 24      audit report, becauseIthinkthatoneofthethingsthatig 25      very clear in terms of the study that,we have performed of the COMMONWEALTH REPORTING COMPANY (7171 761 7150
 
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2    is,to say the very least, very complex.                                      j 3                To try to answer your question in a general fashion !
without going t'hrough each and every aspect of Chapter III,
~
4
            ~
5  which numbers some 30-odd pages, as I recall, I think we 6  would be better served if that were read and the qt$estions 7    asked in that context.
8                MR. SHILOBOD:      Then this evidence that you are t
9    talking about is whatever is contained or discussed in                  ;      ;
i 10    part III of your exhibit; is that what you are saying?
11                WITNESS WIIEATON:    That is correct.        Chapter III and 12    all of the information that is therein contained.
W                    13                We talked specifically in terms of bankruptcy beginning on page 320, and that may be helpful.
14                                                                  We also 15    addressed the possibility.of reorganization outside of                .
la                                                                                  .
Chapter 11 on 322.
17                MR. MESSER:    That is III if f.he exhibit.
18                JUDGE CASEY:      I saw a portion of the report, and              l 19    I apparently had an excerpt before I received the full report,'
20    which is II-1, " Summary"and" Overview and Perspective" in the 21    broad statement.      It says, "At the end of 1978 the future was
                                                                                                          ^
22  . promising for GPU, its ratepsyers and investors.                GPU is 23  now a candidate to be the first major utility to go bankrupt 24  since the Depression.'
25                I assume you are using GPU i,n the overall general cOMhaoNWEAL.TH REPORT 1NG COMPANY (717) 761 7130
  ~_      _
 
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I 1  sense, intending to incorporate the companies.
(
2            MR. SHILOBOD: I didn't read it that way, Your Honor.
3            JUDGE CASEY:    You didn't read it that way?
4            MR. SHILOBOD:      No, I read what it said to mean GPU 5            JUDGE CASEY: First of all, GPU is not the utility-6  It is a utility holding company.
7            MR. MESSER:    That is correct.
8            MR. SHILOBOD:      Then it is not clear what it mear_ .
                  -  9            MR. MESSER:    May I just ask one question of Mr.                  :
i 10  Wheaton before we go on?
11            JUDGE CASEY:    Yes.
m            12            MR. MESSER:    Mr. Wheaton, are you familiar with V
13  the Public Utility Holding Company Act?
14            ffITNESS WHEATON:      In a very general sense.
15            MR. MESSER:    Do you know whether or not the GPU 16  is an exempt holding company under that act, or whether it 17 falls within the purview of that act?        .                                l
                                                                                                        ,1 la            MR. RUSSELL:      The testimony on the record clearly                .
I 19  shows that the General Public Utility Corporation is a                            l 20  registered holding company under the Holding Company Act, i
21  and it has certain specific subsidiaries.
l 22              MR. MESSER:    I appreciate your testimony, :ir.
23  Russell, but I am asking Mr. Wheaton whether he-knows.
24 JUDGE CASEY:    He knows now.                              lllf 25            Did he know at the' time that the audit was being i
l l
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i I  conducted?
2            MR. MESSER:    Has Mr. Russell been sworn?
3            MR. RUSSELL:    If you read Mr. Dieckamp's testimony, 4  you would have observed that fact in the record.                      i 5            MR. SHILOBOD:      This is cross-examination, sir.
6            JUDGE CASEY:    Mr. Russell, I think that really he 7  has a right to test on cross-examination this gentleman's 8  understanding beyond the legal type information which he would 8  not know, but if it is within,the realm of his general exper-10  tise in dealing with the corporations and management combina-11  tions, I think.it is a propoer question.
O_
* 12            IiR. MESSER:    Now that we have gone through this CQ          13  particular soliloquy, Mr. Wheaton, are you familiar other 14  than in a ' general way with that act?
15                                    I just indicated only in a WITNESS WHEATON:
18                                                                          l~
general way.
17 MR. MESSER:    Do you know whether or not any of',the I8  people who have worked on this particular report have taken            : i l
19  into consideration the Public Utility Holding Company Act              !
20  in preparing the suggestions or information contained in this 21 report?
                                                                    ~
22                                    Yes, they did.
WITNESS WHEATON:
43 Who did?
MR. MESSER:
h WITNESS WHEATON:      !!r. James Hogan did most of the i
25 work on this particular area, and part of his review included              j I
1 commonweal.TH REPORTING COMPANY W17 767 7150
 
p23                                                                      . 919'o r~N      1  talking specifically about some of the Public Utility Holdind k s.
2  Act in contacts with people at the SEC.
3            MR. MESSER:    Where i'' that in the report?
4            WITNESS WHEATON:      I 4 n't think that we make specific 5  reference to the discussions of 'e ither the Public Utility 6  Holding Act or our discussions with the SEC in the final report          ,
7  but I would like to make it very clear on the record that there 8  were over four man years of effort put into the production i
9 of this report, and we have not included copies of every                j I
10  interview that we had, nor have we included documentation of 11  each person that we talked with or of -it each option or fact 12  that we considered in the conduct of preparing the report, g g3
(_~
W 13              MR. MESSER:    Mr. Wheaton, would I be making a f air 14  assumption to conclude that you have at least included in 15  this report the most relevant information and important 16  information that you Considered and discovered during your i
17                                                                          I audit?                                      ,
I8              WITNESS WHEATON:    It certainly was our objective,
      .y 19  and to the best of our ability we think that we have done 20  that.
21            MR. MESSER:    Would I    be fair in assuming the 22  . reverse, that the failure ~to discuss any implications that            i 23  might arise under the Public Utility Holding Company Act          --
G        ,.
* were not considered to be important and relevant?
e 25            WITNESS WHEATON:      I think that we would have CoMMcNWEA1.TH REPORTING COMPANY t7tP 7617150
 
        ,      p2,4                                                                                              920 i
i i  put that in what we thought was the proper context.
2                  MR. MESSER:  If it had been important?                      i' 3                  WITNESS WHEATON:    I think we did put it in the 4    proper context.                                                              i; i
5                    MR. MESSER:  Where?                                          -
6                  WITNESS WHEATON:    In terms of all of our considera- l 7    tions that went together in terms of putting together this '                i 8    report.
                              -            9                  MR. MESSER:  There is no specific reference or                i 10        discussion of the act, however, in this report; is that P
11        right?
          -                            12                      WITNESS WHEATON:    I. den't recall it being in thj-O-                                      13      report.                                                                      i 14                      MR. MESSER:  Thank you.
15                      MR. SHILOBOD:    Mr. Wneaton, going back to what we 16      were saying, you made the statement specifically, and I 17      wrote it down, " Front all of the        evidepce that we say, we 18      concluded that if one company went bankrupt, the other one 19      went bankrupt."                        -
      ,                                20                      What I am trying to decide -- and I have read 21        section III of your report -- specifically what evidence is 22        in there that would tell me that if Met-Ed went bankrupt 23      that Penelec would necessarily go, if there was no management 24      combina. tion?
25                      JUDGE CASEY:  Wait a minute. I am not sure whether COMMONWEAL.TH REPORTING COMPANY (7176 763 71SO
                          ~~ ^
            ' ~        '                      -                                              --
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p25                                                                                  . 921 A        1  the question is fair or not.            It says, "From all of the            g 2  evidence they had seen."
                                                                                            ~
3              MR. SHILOBOD: - That's what he said.
4              JUDGE CASEY:        That appears in the report.        Do you.
i 5  mean did he summarize what they had observed which would                        }
6  persuade them?
7              MR. SHILOBOD:        Your Honor, when a witness comes              !
8 forward before Your Honor and makes a conclusion and he
          - 9    advises you that he has all of rhis information to back up
                                                                                                +
10  his conclusion, and it is an important issue because what he 11    is saying is that it doesn't make any ^ difference -
13                                  I don't doubt that, but the evidence f.
t        13 JUDGE CASEY:
that he may have been referring to is matters that he learned e    -
14 about through discvssions.
15 You are entitled to ask him what is the evidence 16 that he saw.
17 MR. SHILOBOD:        That is what I asked him.
18 JUDGE CASEY:        And if it is not outlined in the 19 report, he can say why it isn't.
20                                    That is exactly what I asked hin MR. SHILOBOD:
            **  before, and he referred me to the report, Your Honor, so new 22
                .I am asking exactly where'in the report can I go to find that.
23              I asked him before what evidence was there, and
    "        24 i                  he said to icok at section III.          I have looked at rection
            'S
        '    ~
and my question is: where in section I,II can one reach that COMMONWEAI.TH REPORTING COMPANY (717 781 7150
      ~      -~              . - - -        x        m .        -    _    n ... o    __          ,
 
. p26 : .#                                                                            921A m        t  conclusion?
2              MR. MORRISON:    Your Honor, I an going to object to 3  this. We have spent, I think, one-half '1our on bankruptcy.
4  We are dealing with two issues here, the. proposed management 5  combination and the GPU Nuclear Corporation.            We are not S  dealing with,whether or what will happen if Met-Ed goes into 7  bankruptcy or Penelec or GPU or anything else.
a              I think that Mr. Wicker.has said and Mr. Wheaton
            -  9  has said quite clearly and abundantly that in their opinion              i 10  this didn't have anything to do with the consolidation of the 11 i divisions.
12              I don't know what else they can say about it, and 13  now they are trying to go into evidence of what would happen 14    in a bankruptcy; and it is irrelevant completely.
15              JUDGE CASEY:      If that was their feeling -- and I IS    can appreciate from'what Mr.'Wheaton has said why it might 17    have been -- then the~ should have deleted any reference to 18    bankruptcy; but when you make a statement        L-    this is not      l I
19    prose that we are reading here.        This is an audit report,        -
20    where each sentence and each paragraph has meaning to the 21  people who have ordered the audit.                                        l 12        -      Therefore, it is relevant.
23              Also, maybe from your law school days, you will              l 0.
'# "          24  remember the Torts principle.        You take the victim as you l
23 find him.                                  ,
COMMONWEAL.TM REPORTING COMPANY (7th 7617150
 
p27                                                                              . 922' .
That is just exactly the way we take these compani                .
{        1 2  We can consider a management combination with two healthy 3  corporations which cre not public utilities.            We make our 4  review in that context; not the PUC, but whoever is making the 5  review.
s                Here we are dealing with two public utilities, 7  sister utilities in a holding company framework, af ter a varr a  bad nuclear accident, which has prejudiced their financial 9  structure, and this management combination -- the bankruptcy to  impact and other financial ef *ects have a bearing on whether 11  this is a good move, a bad move or an indifferent move.
12                I think they attempted to cover it to some extent 13    in their audit report, and, therefore, it is relevant for g
14  cross-examination.    .
15                MR. MORRISON:    If I might suggest, Your Honor, I 16  am not saying that bankruptcy isn't dealt with within the 17  report. It is.                            ,
18      -
But that is one separate area.        *fhe two witnesses 19  who have testified have said that the consolidation of the 20    divisions and the combination of management has nothing to do 21  with the financial integlity of the structure as such, making !
1 22  it more or less vulnerable to bankrupty or affecting it in                  l 23  terms of bankruptcy.
('
''        24                And then we have gone into bankruptcy over my            (l) '
25    objection of about half an hour ago that it was irrelevant.                ;
COMMONWEAL.TH REPORTING COMPANY (717 7st.7f 50
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                                                                                                                            -1 1
( ) w.
      ~'                    t  We have gone into it in some detail, trying to find out what                                i 2  will happen to the stock of the various companies and every-3  thing else; and that is not relevant, at least in the witnesseq' i'
4  opinions.
s              It has absolutelf no impact, and they can't state 6  '
st any clearer, so I think we are going into -something that-7  is clearly irrelevant.
8              MR. MC CLAREN:                I don't think counsel has correctly
                        . 9  stated the purpose of this line of questioning, and I would                                  j i
10  support a continuance of it.                        The center purpose here is to 11  test the statements of these witnesses that there are no 12  bankruptcy occasions -in the management combinations, and one                              i m )s-i
                            '3  of the bases for that statement was Mr. Wheaton's statement that i
14 from all.of the evidence that he saw there would be a do. no l
15                                                                                                i effect no matter what.
16                I think we are entitled to question Mr. Wheaton on 17 the basis for that statement.                                  ,                            l 1
6 18                JUDGE CASEY:                I would.be inclined to agree.            I i
18    don't think you can go too far with it.                            I think you can 20    point out clearly how much consideration or how little they 21    gave to it and then get away from the subject, and then you 22    can argue as lawyers do that this was a key matter for 23  consideration and it was glossed over or wasn't treated and
  ,O ',
  's/-                      24    therefore we don't know, or the management combination is.
23 inappropriate at this time under these given circumstances.
Let's take five and clear the air.
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r1                                                                              - . , 9 24 . ,
(Recess.)
T4,S1    1                  JUDGE CASEY:        Back on the record.                        h1 2!                  I would like to ask a general question of Mr.
i                                                                                        1 3i        Wheaton. First of all, I would like to know whether any.
I 4        member of the audit taan involved in this audit was a person                    ;
5        that you considered to to be thoroughly recperienced in mattarsi e        dealing with corporate mergers, corporate acquisitions and.
7        SEC filings?                                                            .      !
8I                  WITNESS WHEATON:          I think that we developed in the h
9F context of the study an appreciation .of the complexities i
10        therewith, and I mentioned Mr. Hogan before.
11                    I think particularly in terms of the financial 12 ;      implications of GPU's current position, he is an expert in                    1 v                  I 13        of those related. matters.
14                  . JUDGE CASEY:      Mr. Who?
15                    WITNESS WHEATON:          Mr. James Hogan.
16                    JUDGE CASEY:        And the next question, you, of course, t
l 17        have counsel with you today who is, I asstane, a member of the la        Massachusetts Bar; is that right?
19                    MR. FAZZONE:        Massachusutts and New York.
I 20 :                  JUDGE CASEY:        Massachusetts and New York. He is not i
21 I        an ,mployee of Theodo::e Barry and Associates; is that correct?
22 '                  WITNESS WHEATON:          That Je correct.
23                    JUDGE CASEY:        He is outside legal counsel?
24                    WITNESS WHEATGN:          That is corre:ct.
25                    JUDGE CASEY:        Do you have s,taff lawyers who COMMONWEALTH REPORTING COMPANY q7f 7 781-7150
 
    .'                , rl
:                                                                                        925      )
{y                        1l participate to any degree or any extent in your management 2  audit function, either writing the report or providing a legal.
3  overview to statements and conclusions that are contained in                        ,
4  the report?                                                                          i 5            WITNESS. WHEATON:                    No, we do not.
6            JUDGE CASEY:                    That is all that I have.
7            MR. SHILOBOD:                    I have one simple question to Mr.
8  Schumaker. Does Your Honor want me to proceed with Mr.
9 Schumaker now and then go back to Mr. Wheaton?                                        ,
I 10            JUDGE CASEY:                    I th'.nk that would be best.              I 11            MR. SHILOBOD:                    Mr. Schumaker, are you familiar
              ..                12  with the relationship between Penelec and Met-Ed with respect v                                                                                                                        !
                    )
12  to the operation and ownership of Three Mile Island; that is 14  the general contractural relationship?
15            WITNESS SCHUMAKER:                      In terms of the details of the      ,
i 16  contract, no; I didn't get into tha details of the contract.                          ;
r                                                                                                                          !
17  I know the ownership interest though.                                                  l 1
18              MR. SHILOBOD:                    Did you make any study of the change f 19  in relationship or change in obligarions to Penelec as a                                ,
20  result of placing the Three Mile Island plant under the control 21 of the GPU Nuclear rather than leaving it with Metropolitan 22  Edison?                                                                                  ,
23            WITNESS SCHUMAKER-                    As I recollect, at the time of
                                                                            /
            %                  24 our study, the relationships -- the new relati.onships dealing 25 with the new corporation were not clearly laid out at that CoMMONWEAt.TH REPORTING COMPANY (7t? 7617150
 
i
* 92d ' . .;
r3 1            time. So, it was not possible for me to do that type of (9 _
i 2            study that you are talking about.                                          l 3                      I chculd mention that this was a March-April time I
4            frame that I was doing most of the. work in.
5                      MR. SHILOBOD:    The report?
6                      WITNESS SCHL:qKER:    Came out in September.
7                      MR. SHILOBOD:    September of 1980.        As of the timet of 8            that report, were you aware of any information that would i
9l have led you to make a conclusion as to whether or not there 10 i I
was a change in obligation or responsibilities for Penelec as 11            a result of the proposal for GPU Nuclear?
12                      MR. RUSSELL:    I am sorry; I have difficulty hear JUDGE CASEY:    You are having difficulty hearing the 13 l 16            question?.
I 15                      MR. RUSSELL:    Yes.
i 16 i                    MR. SHILOBOD:    I inquired of the witness as to 17            whether or not by the time this report was written whether or 'l i
i 18 l          not ha had information that would lead him to make the                        I, 19 l          conclusion as to whetlier there were any changes in the                      !
l 20          t  relationships or obligations on the side of Penelec as a i
21 ll result of the creation of GPU Nuclear?                                                ,
il.
22 d                      WITNESS SCHUMAKER:    1 didn't at that t.i e.
23 -                    MR. SHILOBOD:    Have you made any to datd?
    ,                    i h,
v              24                      WITNESS SCHUMAKER:    No.
25                      MR. SHILOBOD:    I have no further quertions.
_[          _
coMMONWEAt.TH REPORTING coMPAN1P (7171 761-7130
 
  .'. 're                                                                        92.7 f                                                                      1 l-t 1              JUDGE CASEY:    Are there any other questions 2    regarding the nuclear operating agreement?
3              MR. MC CI.AREN:    I have no questions concerning that[j 4    Your Honor.
5              JUDGE CASEY-    I would.just ask, Mr. Schumaker, 6    during the time of the audit going back. to the March-April 7    time frame, you were aware, were you not, that Met-Ed had 4    been the operator of the two units at Three Mile Island; they-9    were the licensed operator by the NRC; and that the ownership-1 I
10    of those two separated generating stations was divided?        I 11    think Met-Ed had 50 percent ownership, Jersey Central 25, and 10    Penelec 25; is that correct?                                          j O
Jv 13              WITNESS SCHUMAKER:      That is cccrect.
14              . JUDGE CASEY:    Did you understand that the 15    . formation of the GPU Nuclear Corporation would take the            f i
16    operation of those .two generating stations at Three Mile 17    Island away from Metropolitan Edison Company and place it in          i 18    the hands of a. newly formed corporation which would be based 19    in Parsippany, New Jersey?      Did you have that information?
l l
20                WITNESS SCHUMAKER:      I am not sure exactly if it was 21    decided at that point if the base was going to be Parsippany.
22-    I think it was still a li.ttle bit up in the air; but as to thei 23    rest of the information, I did have it.                              !
24                              Since you concentrated - that is you, JUDGE CASEY:
25    personally, on the nuclear aspects in the future, what overall.
COMMONWEALTH REPORTING COMPANY ff17 76t.71SO
 
r5        l 928 G.          t        conclusions, if any, did you reach with respect to the new 2
proposed structure, the change from the old system prior to 3
the accident of '797 4
WITNESS SCHUMAKER:          Our overall conclusion relative 5        to the concept - I have to talk in terms of two separate 8                    There is the organizational unit itself, and then i                      things.
              'i      there is the Fact that that organizational unit is now a' 8                                          I see those as two separate things.
separate corporation.
8' Ourstudyconcentratedprimarilyontheorganizationa{
10 aspects of it from a management persoect.ive, the steps that II GPU was taking.
12 i
We conducted interviews with the people.              We read.
I3        the Kemeny. Report and the Rogovin Report to get a fix on C I4        based upon the organization that was being proposed at that j            ,
15 time,    was that appropriate given the external forces that 16 l      were being put on the company through these reports and the l            17
                      ~NRC?                                              ,
18                        Our conclusion at that point was the concept of the 19                                                                                              l organization was appropriate although we did not have                                ;
i 20 sufficient informatien to draw a complete conclusion from the !:                    '
1 21 '
j  standpoint that the roles and functions of the various                              r 22      -  individuals within each of the organizational boxes, so to                          if' 23 i e                  d speak, had not been clearly defined and laid out at that C'
g 24 l 1 ' point.
25 e
The report specifies five or six things that we                      .l  -1 CoMMoNWEAt.TH REPORTING COMPANY (7tM 761-77 50
                        ' ~ " -          - + - - - _w                __,  __
 
  .              .:                                                                                                                                        929 r6 i
O{                                      1'                                  would like to have seen to have drawn a totally complete                          {
2                                      conclusion on the organization.
r, 3                                                      With respect to what I see as the second issue,the 4                                        fact that it is a separate corporation now versus a new 5                                      corporation, with respect to the legal and regulatory 8                                      problems associated with that, we did not get into the details 7                                      of what those problems would be.
8                                                  We did.get into it from the standpoint that the 8I management perspective of what does that mean in terms of 10                                            an ability to attract better people within'an organization.
II                                                        A specific example of that, when you are looking-                ,
12                                          at attracting people from a business perspective, there are a 13 couple of things you do.                  -
14                                                  .You pay them a certain amount of money.              You gi m 38 them a position and a title.
I6                                                  One of the benefits of the new organization is I                                      that you are able.to bring people in a,1d,for probably a little
                                              "                                      additional amount of money, bring them in as a Vice-President, 19                                    which for the inner ego of_ people, for competent people, that                ,
                                              'O
                                              ~
is something they are looking for in their career path up.
                                                'l
                                                ~
So,. it would provide you with a mechanism for                    ,
22 attracting the type of people that you need.
23 It also provides a mechanism for perhaps. over a
      ~l                                            24 period of time conducting the functions in terms of                            ,
25 relationships with your people that you cre training, the COMMONWEAL.TM REPORTING COMPANY #7 f7". 751 7150
 
1
                                                                                        ,    I
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              'l manpower type stuff, somewhat different from the rest of the C      1' 2            utility, you know, the typical T&D type study.
3 !I                    There is a recognition on the part of the industry 4 il that nuclear power is unique.            You can't go by the same game 5! rules that we had running fossil plants.
1 Sl                      So, now we have a separate entity. For a period of i
          ~
time, we have developed perhaps separate work roles which -
8'          differ from what we would have in a fossil plant; and probably 1
9 ! the fact that it is a separate corpor.-ion is going to permit to            that to happen much more easily than if you had that embedded 11 ;          in the existing organizational ralationship.
12                        JUDGE CASEY:  One more question, and I will let    @
ur 13 !          you go.
14 ,                      In your experience or within your knowledge, is is ' there a situatio.. in the United States where an. operating l        IS            electric public utility is the owner of a nuclear plant that        ,
l~ f is not the operator; in other words, a, third party or a ta $          servica company is the operator,of the nuclear plant?
19 '                      WITNESS SCHUMAKER:  To give you an example, at        ,
20            Toledo-Edison, there is a group called CAPCO.      I can't tell you:
I I
21 ! what it is, but it is in the State of Ohio.
1 22 "                      They operate the Davis-Bessey plants, and the 23            ownership of that is actually other utilities in the CAPCO
          ,. l group that actually own it, but Toledo-Edison acts as the
  -      ~
l    owner.                                  ,
I I
S
 
      , r8          ,                                                                                        931  .
I l
G            1;                            JUDGE CASEY:        Acts as the operator, do you mean -
w                ,
WITNESS SCHUMAKER:                The operator of the plant.
2f
                  ?j                            JUDGE CASEY:        Are they a part owner as a member of' 4' the CAPCO ccabine?
5                              WITNESS SCHUMAKER:                Thei are also a, cart owner of  }
i that situation.-
That is a situation where a utility            '
7                              JUDGE CASEY:
a          which is selling power and dealing wi~th customers in the 8i conventional sense is also the operator of the nuclear 10          facility.
11 l                            I was asking whether you knew of a situation where I
n.
uw 12 l a third party, a team of specialists operated' the plan, but 13          was not- actually marketing the power; they were doing 14 !        it unde.: contract or otherwise?
15
                        ;                        WITNESS SCHUMAKER:                The Power Authority of the i
16          State of New York operates --
17                              WITNESS WHEATON:            Indian Creek-3.
18                                                                And Fitzpatrick'and Fitzgerald, WITNESS SCHUMAKER:
18 a situation similar to that.
20                                                  Do they supply cower to the oublic as JUDGE CASEY:
                  'llanauthoritysuchasTVA,oraretheysellingelectricityto
                  ~
22            utilities wh'o are, in turn, providing --                                              l
                  '3 WITNESS SCHUMAKER:                They are selling it to the OL                ,.
                  ~
utility, basically.
25 JUDGE CASEY:        I am simply interested to know whether COMMONWEALTH REPORTING COMPANY 717 76f.71SO 1
                            - - - - - - - - - ~ .        ,+-,~.,_...a  - . . , _ _ _ = -      ---a m-    .            I
 
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l                                                                                    l l
h,                                                                                    !
8 I
1l          you knew of any precedent for what the GPU Nuclear Corporat                ,
2 f proposes to do and yet allow the operating utilities to remain 3l the owner-licensees with the NRC.                                                    !
4l                      I don't expect you to know what the NRC's attitude              l 5l: is about that matter, so just the areas that you have I                                                                              r 61          mentioned to me, those that you are familiar with.                -
7
* WITNESS SCHUMAKER:      Yes.                            -
8i                      JUDGE CASEY:      Is there anything else?                      9 9                        MR. SHILOBOD:      There was just one other question.
i I
10 l                      Mr. Schumaker, if I may paraphrase a section of                ;
j i
11 l          the Commission report, as I recall it, I believe there was i
t 12 ! indication of dissatisfaction at the absence of adequate                        a s.)                                                                                          W 13 i          management at Three Mile Island prior to the accident.            Would.
l 14 i          that be a-fair assessment of one of their findings?
I 15 l                      WITNESS SCHUMAKER:      I think there was also an              l
* i t
18            indication of an absence of technical support on the Island t
I I
17 l          itself, per se.
* I 1
18                        MR. SHILOBOD:      And there was a discussion about the l t
19 !          splintering of authority, a concern over the splintering of                i 20 '          authority; wasn't that correct?
6 I
(            21 ,                      WITNESS SCHUMAKER:      That is correct.
22                        MR ". SHIL'OBOD:  And the people that were responsible 3
23            had other responsibilities that were not necessarily compatible with the best running of Three Mile Island.
            ~ 4                                                                            Wou I                    ;,
25 !            that be a fair statement?                  ,
COMMCNWEAl TH REPORTING COMPANY 87t"h 7617150
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            .E10                                                                            93.1 i
O_                                  *zrstss scacaxxza=        1 enin* t*at wou14 se a zeir 2      statement.                                                            }
3                MR. SEILOBOD:      Now, let's presume that the Forked      i I
4      River was not in existence.        Would there be any sense in 5      having the GPU nuclear headquarters in New Jersey with the.
6      Three Mile Island's operation here in Pennsylvania?
7                MR. RUSSELL:      The Forked River plant is not in a      existence. Maybe it's Oyster Creek.
8                MR. SHILOBOD:      Oyster Creek.
l l,
10                  JUDGE CASEY:      Oyster Creek then.                      !
11                WITNESS SCHUMAKER:        If you make the assumption that s          12      Oyster Creek was not in existence?
Os                13                MR. SHILOBCD:      Yes.
                                                                                                ~
I4                WITNESS SCHUMAKER:        I guess, in that case, I 15                                      making a strong case for it being could not -- I could see 16 l located in Pennsylvania versus New Jersey in that case.
17 By the same token, I think it is something that            l 3
18 would require a more detailed study in terms of who the people!I i
19                                                                            !
are around it.
                  'O
                  ~
MR. SHI'JBOD:      Did you make any study or did your i
21 study evaluate the impact of having corporate management in 22      New Jersey as opposed to having it here in close proximity to            '
23 Three Mile Island?
  /*%    .
k['                                  WITNESS SCHUMAKER:        No; our study did not do that.
25 Our study did have a recommendation t, hat that should be looked:
L                COMMONWEAL.TM REPORTING CCMPANY .7? ? 76 t.7f s0 Il                                                              -
 
                                                                                            ,934',
r11      i l
I                                                                                  .
l l                                                                                  -l O
i=to hr the oo=9env.                                                  #
2                                          I have no further questions.
i                      MR. SHILOBOD:
i 3l                        JUDGE CASEY:  Apparently, you are excused, Mr.
              *! Schumaker, although you may continue to sit in.
5
                  !                    Now, we are going to get back to what, further l
6 questioning of Mr. Wheaton?
MR. SHILOBOD:    Yes; I had a question on the record a
to the witness, and I don't believe that it was ever answered.
                    .                                                                                  l I asked him where specifically in Section III I could 10 !          go to for this evidence that would show that if Metropolitan 11 l.Edison went bankrupt, that Penelec would necessarily follow l
Q  ,
suit.                                                              g WITNESS WHEATIN:    In Section II-6, the first full l
i 14ha            paragraph.          ,
15 i'                                      That is in the summary section?
i                MR. SHILOBOD:
16 i                      WITNESS WHEATON:    That is correct.      About two-thirds 17 ?
of the way through is the statement, ",The bankruptcy of one of l
18 ' the operating companies would have a domino effect throughout 1
19j the GPU System,and possibly a serious impact on other PJM P
I' 20 {            companies.Within the GPU System, even.Penelec -- which is in ail
                        '                                                                                l, 21 l          much stronger financial position than the other operating i,
ll 22 '
companies--might be forced' into ban.:ruptcy,because it would not!' '
                                                                                                        ,l 23 i
                        ',  be able to obtain capital from the parent and because it could alsoi e
Vi          24 :
                          " be precluded from obtaining any external financing."
h .l I                                                                                '
25 i'                                      How could we, exclude it from MR. SHILOBOD:                                                  ll CoMMONWEAt.TH REPORTING COMP ANY i7f 7 7617750                .
 
      . *rl2                                                                                                                  935 3
i O-                        I        obtaining any external financing?
2                            WITNESS WHEATON:        On the basis of its financial 3; position.                  The SEC has certain regulations in terms of i
4k coverage ratios and equity ratios and this kind of thing.
5                            The company's financial position could, in fact, 6! preclude it from obtaining any external financing.
i 7l                          MR. SHILOBOD:  Do you have any evidence now as to 3,      what its coverage ratio is and what its capability is in the 9        borrowing field?
10                            WITNESS WHEATON:        I don't have any current informa-11 l!      tion, but it is my understanding that the companies do not 12        have the ability to - any of the operating companies have 13 :      very limited ability, if any ability, to get external 14        financing at this stage.
15 f                          MR. SHILOBOD:  Is that because of the revolving i
16 '      credit agreement?
17 !                          WITNESS WHEATON:      That is because of the financial Is ! position of the company,and the revolving credit agreement i
13 '      is certainly an important aspect of the company's overall 20 I financial position.
MR. SHILOBOD:  If the return being realized by 21 l 22 l. Penelee was sufficient to give it an adequate coverage and if l-                                                      .
23!        it were able to obtain external financing, then this dcminc O-                      -  4 effect would not necessarily follow; is that                      't fair statement?
25 WITNESS WHEATON:      I think we have looked at COMMONWEAL.TH REPORTING COMP ANY a717 761 7
* 5C
    .______..___________n-      _      _ _ _ _ _ _ _    _    _          ___          _  ._ _ _ .          _ . _ _ _ _ _ _ _
 
916 r13                                                                                *      '
1
[          3!          bankruptcy, and a number of experts have looked at                  g bankruptcies, and the whole area is one of just extreme 3
speculation.
4                        I would be out of my element to try to speculate 3            in terms of what might happen.
I 6'                      MR.-SHILOBOD:  J. 1,elieve that you earlier indicated.'
I            to me tnat there were no legal or financial implications in 8
the management combination; is that correct?
8 WITNESS NEEATON:    As we understand t.he proposed 30            combination, it is merely a combination of company managements          i 11 I          and does not have any legal or financial in.plications, i
12 !          except for the one very important financial implication; and 13            that is the potential cost savings and cost avoidance that i
            "              Mr. Wicker has testified to, and I think that is. a very
                /
15 I
:      important one.
16 F                MR. SHILOBOD:    Let me ask you another question.
l 17 I i    .Did you make any study as to what the financial community's view kould be of these companies in the event of a combined
                                                                                ~
I 13
                    ,    management vis-a-vis abilities to place securities or raise
            ~O l funds in the capital markets?
l
            'l
            ~
We did not make a specific study
                    ,1              WITNESS WHEATON:                                              I 92
            ~
of that in that area.
t
            ~3'
                    '                                  If it is important as to whether or MR. SHILOBOD:
I
  -          24 ;
not Penelec could obtain external financing in the event o 9
            ~5 "d          bankruptcy by Met-Ed, wouldn't thc.t issue, mainly the view I                                                                            I COMMONWEALTH #EPooTING COMPANY (777 761 7150 1
 
  - '      . r14  -
937 D,
V                  1      of the financial community with respect to this combined.
2      managemm.tt , have an important impact on whether or ..ct ther 3      combination should be carried out?
4                            MR. MORRISON:          I think I will object to that. It is.
5      calling for speculation.                    He had two" ifs" in there. We don't i
6      have -- that calls for some speculation, I think.                                l 7                          JUDGE CASEY:        Well, first of all, you indicated that-sl      they didn't conduct any study or survey or circulate any 8lj ~ questionnaires in the financial community to determine 10        whetl'er Penelec'sr credit would be badly impaired in the event 11        of a bankruptcy on the part of Met-Ed.
12                            I think we can assume that there might be such a ps^.
v 13        consequence if they are involved in a revolving credit 14 l      agreement where corporate stock and other items of value are 15 I                                                        I don't think he can respond to pledged as security to loans.
16                                  '
the question.
17 MR. SHILG200:          Does the pled,ging of the stock not 18 necessarily af fect the borrowing capacities, I believe, but 19l]Iwon'tgetintothatnow.
                ,0 '
                ~
j                      Mr. Wheaton, referring to III-12 and 13,          :.9 i
2I following statement occurs. "On a statewide bas,is ,                bcch 22 ll Pennsylvania and New Jersey have approximatelf' --
                  ,, , i
                  "!                          WITNESS WHEATON:          Could you tel.1 me exactly where M            24
                        !  you are?
5;                                              The last sentence on page III-13 in MR. SHILOBOD:
COMMONWEAL,.N REPoMWG CoMPMY a7t7 7617150
 
rl5          i
* 933  i l
l                                                                                                                            .
i                                                                                                                            +
i<
                  '                the paragraph preceding the heading, " Deferred Energy."                                                  Th l
2' last two sentences of that paragraph, it says, "On a statewide 8                                                            i l
I I                                                                                                                          '
3 l basis, both Pennsylvania and New Jersey have approximately 4I equal distributions of consolidated equity capital.
5 Consequently, an impairment of one state could have an 6
unfavorable effect on the other."                                  What did you mean?
WITNESS WHEATON:                I think the statement speaks for 8
itself I                                                                                                                          i, i
MR. SHILOBOD:    How could there be an unfavorable                                                  i 10 '
                        !impactontheState                  of Pennsylvania because there is an 11 equal distribution of equity capital in two different states?
I A
v
      ,                            I don' t understitd that.                                                                                    W 13 It is III.-13, the paragraph preceding, " Deferred 14 fEnergy."                -          ,
15 WITNESS WHEATON:              This has to be put into the i
16 ]                                                                                                                                i context of the entire section.                  Here we are talking about 17 Forked River and the approximately S39,0 million investment, 18 and I would refer you to Section III, page III-8.
13 l      '
On III-8, we have indicated the order of magnitude 20 i; of key financial issues and that lists some five items:
21 clean-up and restoration costs, TMI-1, TMI-2, Forked River and                                                    i i
22                                                                                                                                  I Deferred Energy.
23 ;
I                  The S390 million - and this is starting on page
\/-
24 !
are talking about what might happen if there is Q
jIII        we i
25 i' an unfavorable resolution -- and I say this " unfavorable" in                                                    -
i COMMONWEA1.TH Rl![ PORTING CQMPANY (7171 761 715C i
 
i l
      ,"        , . r16                                                                                g,39 ;
I i
i ii                                                                          !
O ^N    _,                      ,
4 terms of the company's financial position -- the Forked            l 2'
i    River accounting question.                                          ,
I 3lI                We have stated that if you r in effect, had an 4'',
unfavorable -- and Pennsylvania has no regulatory control-1 5I over Forked River - what we have implied and indicated on e
page III-S I believe is that any one of these items            '
7 could, in fact; with an. unfavorable resolution, precipitate 8
a bankruptcy.
* 9
                            -                      The context of these two statements simply is that      l 10                                                          .
Forked River, while'it is entirely a New Jersey problem.and 11 requires resolution by the regulatory bodies in New Jersey, 12 has such an impact en the overall financial equity, if you.
13 will - and that is the term that we used -- the consolidated i
14l equity income, tha.t an impairment, that is an unfavorable 15                                                                          l resciution in New Jersey, would end up in all probability          j I
IG i  having a negr.tive impact on the entire GPU System and, 17 therefore, the inipact on New Jersey would spread to 18 Pennsylvania and this, in effect, ties back to, I think, the        l 19 question that is another example of the statement that I read ;i 20 I tc you before in the summary chapter in terms of the probable .'
21 1 domino effect.                                                      ,
The impact is, as we have indicated in terms of the 23 Forked River question, that $390 million represents 28              ;
24                                                                          ,
percent of the equity capital of the company.
25 MR. SHILOBOD:    Coas Penelec'have any interest in CoMMCNWEAL.TM REPORTING CCMPt.NY  717 767-7130
                                                                        -=
_ _ _ _ m __ __ _ - __ __ _ - _ __
 
rl7 c 940 .,
()              I'        Forked River?                                                          h 2                          WITNESS WHEATON:      No, they don't.
MR. SHILOBOD:      Would the inability to recover the 3l 4          investment at Forked River affect the capital structure of 3          Penelec?                                                                  ,
                            ~
i e
WITNESS WHEATON:      I think that the answer to that 7
* is yes.
8 MR. SHILOBOD:      How?
3        '
Because of the fact that through
              .      I                      WITNESS WHEATON:
10 f
                    !        the revolving credit agreement, we have an intertwining of the-11            financial positions of all three operating companies.          The      -
  -            12            ability to get external financing would be impaired possibly 33 and in all likelihood; again pure speculation in terms of what 14 would happen..        .
15 But let us assume that in New Jersey,the unfavorable I6 l resolution of Forked River would affect and bankrupt Jersey i
                      ! Central Power and Light.                I think a re,asonable expectation 13 il would be that the banks, via the revolving credit agreement l
19 -lt or their collateral, if you will, is the stock of Penelec and N
20 '' that becomes the asset that they have r that they would 21 j      certainly, I would guess, take steps to try to protect what 2'~b R remains of their interest.
I 23 :
:                    MR. SHILOBOD:      Would the bankruptcy of Jersey 24 !
Central -- you are indicating what could happen under a              h 25 revolving credit agreement.          There coald be a restriction on
                              -                COMMONWEALTH REPORTING COMPANY 717 7617t SC
                                * * ~ ~ ~                  ___          - ___-__...:                    __
 
  .- .* r18      j 941  ,
I i
4                                                                                      i I
Penelee's borrowing capacity; is that what you are saying?
2 WITNESS WHEATON:        Sure.
3 MR. SHILOBOD:        To date, have you seen any evidence f            that the creditors are looking separately at Penelec as opposed to Met-Ed and Jersey Central with respect to borrowing-l 6
capacities under the revolving credit agreement?
              .I WITNESS WHEATON:          I think our interfacing with the 3
banks indicate that they have been and are looking at every 9fpossibleaspectofthisentirefinancialsituation.
i 10                        I can't speak for what they have done specifically 11 {          in terms of looking at that, but I am sure that each time t
i,- i that either Commission or the NRC has taken an action that
                    -    banks have been following those. very closely and are taking "I steps to minimize ,their risk and protect their interest.
15 MR. SHILOBOD:        Let me give you a hypothetical.
I l 'i (        Supposing that Penelee was not a party to that revolving
                      )
1- N                                  would the bankruptcy of Jersey              Central
                      'l credit agreement, a
is ], have affected the capital structure of Penelec?                            Your answer
                      }
is no?
            'O -
            ~
1              WITNESS WHEATON:        Again, it is a hypothetical t
2 question. If, in effect, Penelec was a separate atility with 16        *t l                          no financial ties at all with Jersey Central in any way 1
whatsoever, if something happened, something that has a lO                          negative impact on Jersey Central flows over to Penelec, if n
            ~i I
j they were separate companies with no financial connection at ti coMMoNWCAt.Tw 'tEPC't7tNG OOMP A NY ''? 761 7 t SO
 
ris    ,;                                                                          .,942.,
o
        *l 3
all through the holding company, obviously, theanswerisitIlh 2lwouldhavenoimpact, but you are talking about two separate 1
3]anddistinctoperations;andasamatteroffact,                              that ain't i
4 so.
5i MR. SHILOBOD:        Tell me how the capital structure          !
i l
6l of Penelec'specifically would be affected.
l I
Il                    MR. RUSSELL:        Specifically would?
3
              .            MR. SHILOBOD:        If Penelec was not a party to the revolving credit agreement and Jersey Central went bankrupt.
IO WITNESS WHEATON:          Would you repeat the question?        :
1 II
        ,                  MR. SHILOBOD:        Continuing with that line of 1 ll questioning, specifically how would the capital structure I'
            !                                                                              k i of Penelec be changed if Jersey Central went bankrupt?
    "                                                How would it be changed?
                          -WITNESS ,WHEATON:
MR. SHILOBOD:        Yes. Would there be a change in the l
    *0 equity portion of the balance sheet or what?
WITNESS WHEATON:            I think we,have indicated that 18
:-l on II-6.
i i
MR. SHILOBOD:        On II-6, you show the investments 7
    ~0 in Forked River.      My understanding was --
v
    ~'l                    WITNESS WHEATON:          On II-6, I don't see anything about Forked River.
MR. SHILOBOD:        You are talking now about the y
ability to raise external financing; is that what you are g
:5 saying?                                        -
s ecmoswss:.rs nsper- *.G      COMPMW    ? W 7tSC
 
  . -  .t20              ;
943 l
1                          (Witness nodding.)
2 .I '
MR. S!IILOBOD:    Absent the need for external it i
3 financing, there would be no change in the external structure 4
of Penelec.
5
:                    MR. RUSSELL:    Objection, because I think it is il e1 highly speculative, and it is contrary to facts'which have
                  -              t                          .
                    ',;already been developed in this record.
1 8 !! ,                      MR. SHILOBOD:      Your Honor, he said it is going to I
8              affect the capital structures and, presumably, this domino l                                                                    .
10 '                effect is going to occur.        I am trying to find out how this    .
I Il
                            ' is going to happen.
I don.'t care what he has said.      The
(}          I2 l                            MR. RUSELL:
13 lquestioniswhatIamobjectingto.
p I4 ll                          ,R.
M    SHILOBOD:    I do.
:5                            JUDGE CASEY:    What are you objecting to?
16                                              I am objecting to the question MR. RUSSELL:
IIi because, one, it is stpeculative and, , secondly, it assumes 18                  a fact which is contrary to what is already established in the l              to                  record through Mr. Dieckamp 's testimony.      Our utilities are
              'O constantly in need of additional capital.
                .,-3    4
                            ,                  JUDGE CASEY:    They are capital intensive industries?
MR. RUSSELL:    Right.
                            ,!                JUDGE CASEY:      Right; but I think Mr. Shilobed wa: .s
' O              -  4 to know if he made a statement c'_4.c.g those lines, did he assume the possible effect, even though it is speculative,
                ~5              I
                              .I a
1 li                    COMMQNWF C H 9E7o4?!NG 00MP ANY 717 751 7 :-
 
944 r21          y                                                                              ,.
            *t I
even though it is hypothetical, in order to come up with                  ggg this domino theory, the spreading impact of the one company's 3
bankruptcy?
l.
4 !,!                      MR. SHILOBOD:        Particularly with respect to a 8
company that has no interest in the other and has no interest 8
l in that particular power plant.
7 !l                        WITNESS WHEATON:          We do have the revolving credit i
8'              agreement. That is why I am not sure, and there is a financial 9
tie that exists among the companies as a result of that.
                .i to Right now, that is a fact.
11                                                Then the revolving credit acreement i                  MR. SHILOBOD:
l' ~
did affect Penelec's ability to borrow; is that what you are 13 h
                ,; saying?
      "4
      . '!                        WITNESS WHIMON:        I would say that it certainly has l'
      ")animpactonPenelec'sabilitytoborrow.
o is "~
MR. SHILOBOD:        If that revolving credit agreeme..t t
17 i were not there, would the losses of Je,rsey Central change 13 i ths capital structure of Penelec?                  That was my question and, 19 if so, how?
      '' O You are indicating that it might have an impact
      ~1 on borrowing. Is that what your indication was, or am I i,
wrong?
la WITNESS WHEATON:          All we have said is that if Jerse; Central were to become bankrupt, the probable outcome of th                  h 23 would be actions taken by the banks and other creditcrs.
                    .                  covnc~;wc:.m =t,: m .e ::w.ra := ras r e -
 
          .-                                                                                                                                                                                                                                                                  945    .
  .                  .r22                              1 i;                                                                                                                                                                                                                          ;
I
                                                                                                                                                                                                                                                                                    'l  i
()                                    i
                                          ,1 I don't know precisely what the chain of events                            !
j might be that would take place under that scenario.
3i              o, It is likely, however, simply because of the                              ;
4 question of the revolving credit agreement that the banks 5
have used and have collateral for their loan in terms of the stock at Penelec that they would exercise some rights.in that
                                          -I*
:                    regard.
MR. SHILOBOD:              So, it could affect the ownership              i i
9' rights of Penelec stock; is that what you are saying?
I WITNESS WHEATCN:                It seems reasonable to me that
                                      !! '                                                                                                                                                                                                                                          t
                                                            ;                    that might very well happen.
i g ,~ '
MR. SHILOBOD:            Do the ownership rights of Penelec 13
                                                                ' stock necessarily control its capital structure?
If
                                        "            !I'                                                                                                                                            -WITNESS WHEATON :                  I would think so.                          i
                                                            !                                                                                                                                                                                                                        l 15
* MR. SHILOBOD:            Why or how?                                      l g                                                                                                                                                                                                                    l ic 1                                                                                                                                                                                              I guess that determines the WITNESS WHEATON:
17 ] ownership of a company and it determin,es who is going to 18]i take whatever management actions might be required.                                                                                                                                                                                      -
i lo a                                                                                                                                                                                        You are indicating that the change              !
                                                                  !                                                                                                                                        MR. SHILOBOD:                                                              ,
l                                      20 l                                                                                                                                                                                                                                            .
would come as a result of whatever action the owner might                                                                                                                                          ,
21 l                                                                                                                                                                                                                                          -
                                                              .i                    take thereafter?
WITNESS WHEATON':            And there we ar6 talking about,              i I
l I think in terms of that scenario, the debtor in possession.
l I                                          yi l    ('s'')                                                        t                  I have no idea as to what the debtor in possession might do 25 U under that sequence of events.                                                                                                                                                        .
ii l'                                                                                                                                              cOM*AONVsCA:.TH WCPORTING OOMp ANY        7** 74 ?.7' *C b
 
r23    q                                                                          ,
946, I
i l'
il 1 i;                    MR. SHILOBOD:    The instance that there is a chang 2'            in ownership, that, in and of itself, does not change capital ,
l t
3            s tructu re , does it; that is ownership of the stock?                    ;
4'                      WITNESS WHEATON:      I would think so.
l' 34                      MR. SHILOBOD:      I woul6 like to refer your attention P
6            to III-14.
i 7!                      MR. 69RRISON:      Your Honor, I think I better renew i
I 8, my objection to this line of questioning.                  We were all              l i
        '            over bankruptcy. Forl5 minutes        we have been dealing '.ocut          ,
            .                                                                                  /
10 i          the bankruptcy of Jersey Central compared to Penelec.-
11                        We have two issues in this case.        Again, we are 12 '          talking about the management combination, and we are talking 13 ;; about the Nuclear Corporation.  -
i 14 i
                                .What the witnesses have said is that this change
                                          '                                                      4 15 " that they are talking about is not a change in ownership,                            f 16            the assets, the corporate structure.
17          :              Yet, Mr. Shilobod has asked questions about the                :
                                                                -                                i 13 , effects of bankruptcy of a New Jersey company on a Pennsylvania 19            company.                                                                    ,
20 j                      How does that affect stock ownership?          All of that
                ,1 2I '
is irrelevant.
22                        JUDGE CASEY:    I am inclined to agree at this point E            with the recent line of questioning, although he is entitled 24
                  . toquestionaboutpartsofthereportwhichbearoneitherllh 23 the management combination or the Nuclear Corporation.
1
:o w:c-mnn auwmc =cupan-      ? 7 set 1,sa
 
r24                .
vua
        .                I i
I I t MR. SHILOBOD:          I am at a loss, because I haven't (1)                    ,i
                          ,j even posed my question and there has been an objection to it.
3 I can't understand that.
4 I                                      I am on another issue at this point, and I don't 5hl understand what the objection is,to tell you the truth.
6j                                      JUDGE CASEY:          I know you were skipping to something I
7 I on this page, but I want to rv.ke this observation on the 8
record, and you can jump all over me if I am incorrect.
9 i                                    When you were analyzing this management ccmbinaticn, i
to l were you thinking of it as a tool in the foture to kind of "l            shore up the operation deficiencies that existed within the I
t e .,
                                ! corporate structure rather tnan whether it would work or no-e
()                  I li under the scenario of bankruptcy?
                      "h                                      .I mean were you giving any real consideration to 15 'l whether it would be a good plan to implement in case.of a IG bankruptcy or whether the status quo should be preserved?
WITNESS WHEATON:          The first -- and I think this is
                            ]0                                                                        ,
t8 h
                                ! important in terms of putting the whole report into its
                              -l C
* 19 proper context.                        If we look at the page III-8, which I have
                      'O
                      ~
indicated before where we have an order of magnitude cf key
                      ~ t II
                      ' ,. financial issues, and we talk in terms of S555 millien, 5250 a
million, $715 million and $390 million and S238 millica, we
                      ,3        i
                        ~'
are talking about very, very substantial sums of mcney.
u The management combination that we are talking            c
{}                  _a ,;
H talks about a significant sum of money, S18 million.
la In cer-s cov . onww.m 4:aca :sc coun~y v      m.r n
                              ]n
 
r25      a
                                                                                                                                                                              ., 948.,
I-            of annualized savings, that is peanuts compared to the                                                                                                        (g) 2 numbers that are involved here.
3 JUDGE CASEY:          Correct; and the company so admits.
i 4l Mr. Verrochi or P.r. Donofrio said that, you know, a two percent savings in overall operating costs -- or maybe it was 6 l' Mr. Russell -- is not the thing that provided the impetus N
really, although that is an added benefit.                                                                                                    That is their 3l- testimony, not mine, a statement or view of the thing.
That
        &J q        is not the big picture.
10 l                          WITNESS WHEATON:                    I think that is appropriate.                                                                                I j think in that context, we were in line with the original 1: il! intent of our manaaement audit which was to ider.tify any
* 3        '
potential cost savings that might accrue to the company.
14 ,
3
                                  'We were ,very interested in the management is o
                  ; combination.        Na looked at that management c:ombination to see if, in ef fect, the ratepayers could attain Sinancial benefits.
l Mr. Wicker has talked about ,those, and we think
;                a 13        4,
;                :; that those benefits are significant and we think that they l
1; ;
                    ' should be pursued aggressively by the company.
20 In that context, I should also point out in looking at the management ccmbination,the responsibility and the 1
right and the prmregative to make a management combination is that of the company's and, at least in our understanding, not that of the Commission's or of TB&A to make those
        '3 l                      recommendations.
i l
                  '                    OO'/* 10N /. Al. M 2CFO U iNG COM P A N Y                                                                                717 761 7*2O l
 
                                                                                  ,.r26    ,                                                                            949 i.
                                                                                            !I
()                                                                      1 The conpany had put forth the recommendation to 2 'l make the combi.1ation.
Our charge was to look at that 3 'I; combination .o see if it made sense, if it would provide
                                                                                            't 4 y benefits.
5d                      I just want to put the S18 million in its proper P
6'          context. That is how we looked at the S18 million.          Could l
7j the management combination, in effect, provide financial                          -
i 8            benefits?
9i                      The management combination is not going to resolre i
10 l, the bankruptcy question.
it it'                      The second question out of that that logically i
is there anything 12 l)foucas:          if that is the case, will, in fact        --
O.                                                                        ;
13 .. that could happen if the company went ahead.with the 1
I 34 ;l        management combination that could end up being a negative in 15 , a subsequent situation,                i.e. either forcing a      bankruptcy in 16 ': and of itself or being something that if there were a 17l bankruptcy, we could have some disruption of service or
:I I
18 ! whatever to the ratepayers of the State of Pennsylvania?
l
[
d 19          '
We were able, at least to our satisfaction, to 20            satisfy ourselves that, in effect, that would not happen.
                                                                                                'i 2i 9                    So, we have come forward and we fully support the 1
22 ' concept of the management combination, but it has to be put 23            into its context; and that is $18 million a year, and that is 24            not going to resolve the very real financial crisis that che 20I j' GPU System is in at this stage.                    '
commonw u 9 w onm4:; ::cen ,    7: 7 ve i.7 ;
ll
 
r27            ,                                                                                ,950 ,
[            !    ,                  JUDGE CASEY:    Other than the S18 million which ha 2 ! become a real whipping boy in the context of this case, which 3 j\' is really a two percent everall savings to the company which might inure to the benefit of the ratepayers at some point 4l 5            in time, are there other possible benefits which migth accrue -
                !                                                                                            6 6j          to Pennsylvania rac          fers c.?her than financial arising out                  j 7            of thic management combination idea that the company has?                      -
8l                        WITNESS WHEATON:          Yes; and I think that I believe i
I 9;! that Mr. Wicker has responded to t? t in terms of identifying 10            some of the qualitative benefits that would, in fact, flow i
11 i          out of a management combination.
r          12                          I think that those.are spelled out in our report t,
13            on VI-12 and 13 in terms of the types of benefits that could g
I 14 :          fall out of the combined management in addition to.the cost 15l l savings, and these are, in terms of on VI-12, the general 16 o    issues.
We have talked here about single point responsibility I~ l                                                            ,
is j for the major functions,                  respon<ibility for the company's con-a 19 4 servation and load man; ament efforts being assigned to one 20 I individual at the executive level, setting aside the independene 3,      !
          '', e.nd priority of materials management functions, the
                    ;1 2
                    ] imp,ortance of communications, particularly with regulatory
            '"jl n
J entities.                                                        .
1 a
            ~ 'i                        I think that this is, by the way, extremely                        W 4
            'sbg          important.        One of the things that we, found in our study                  -
                      ;                      COMMONWEALTH REPORTING COMPANY 47f 7* 76 8 7150 1"      . . _ .    -
 
95I      l r28              ,                                                                                    -
    .        ;-                s l                                                                                    l I                                                                                    l l                                                                                    l l
and throughout our involvement here is that there has been a
        ']                  I                                                                                      l 2l l
very poor rapport, if you will, that has existed between the
                                          ~
3          company and the Commission in terms of how to do deal with 4l the various issues.
5                        Part of the reasons for some of those difficulties          t 6          was the existence of two managements of differer~ operating 7          companies in Pennsylvania, i
The pulling together of GPU's ownership under one 8,
l
                    ,      8l managership, which could speak for GPU in Pennsylvania, we see 10          as a real benefit and, hopefully, would minimize some of the              ,
                            !!          difficulties that have made it very difficult for Pennsylvania 12          to deal with the whole GPU financial liability question.                  ;
l                                                                                l 13                                          Thanle you sir.                            j JUCCE CASEY:
34                      .Go ahead, Mr. Shilobod.                                      I 15 i
MR. SHILOBOD:    Going to III-14, there is a 16          statement that, "When the deferred energy balances are                    -
l                                !
l                          17 I        exhausted, GPU's cash flow would drop significantly unless I
18          other sources are provided."
(                                                                                ,
l 19 l                        Is there any effect on Penelec with respect to 20 ) the dropping of the cash flows as a result of the exhaustion l
21 l of deferred energy balances?
22        .
WITNESS WHEATON.:    I think , 'he:re again, we have to --
2 as I recollect the situation          here, Met-Ed's financial 3-                                    situation is much more precarious than Penelec's.
(V                        ~y l, 25 -                        I th'nk if we look at the b,alances that are shown CoMMoNWEAI.TH REPORTING COMPANY r71D 76171 SC
 
r30 952'.  ,
J i                                                                              &,
i 1 j, here in terms of the relationship between the deferred crediW l 2L balances and the deferred energy credits and the outstandiny i
i                                                                                      1 3          loan balances, we saw a bringing down of those balances to a 4          level that met the intent of the CompiSSion's rate order.
l 3i                      We saw a different treatment occur with respect to          l 6'        Met-Ed and, in ef fect, Met-Ed's situation was not happening 7          in the same manner that Penalec's was.                              .    ,
8                      MR. SHILOBOD:  I suppose when you say the company, You meant 9j!youdidn'tmeanthatasdefinedinthereport.
I                                                                                .
10 '        Met-Ed; is that a fair statement?
11                      WITNESS WHEATON:      What I am saying is that 12          Penelec's situation, if you look at each item separately,            &
g->
L)
W 13          Penelec's deferred energy costs and short-term debt, they are              ,
I I4 !        going down in consonance; Met-Ed's was not.
I MR. SHILOBOD:  If Your Honor please, I have a few 15 l  .
16      I more questions for Mr. Wheaton, but I would rather go on to 17 ;        Mr. Wicker since he may not be available at the next set of l
18          hearings or hereafter.
19                      JUDGE CASEY:  Since you are back to Mr. Wicker, and '
il 20          I don't know what the area of cross-examination is going to
        '1 l
j be at this time and it may be going over unchartered fields, 22 but. I think that we can't circumvent Mr. McClaren's role in the case or Mr. Russell.
I would like to try to get that in if I can.
The@y 24 ',i 25 i        said that they had a few questions, 1 specially Commission f
COMMONWEALTH Rew"etT1NG COMP ANY 7tB 7617tSO
 
953 r31      i I          Trial Staff that has an important interest in the case.
3'                      Mr. McClaren?
                      'l 3                                            CROSS-EXAMINATION 4'                      MR. MC CLAREN:          Thank you, Your Honor.                                                                                                                    ,
I 5                      Mr. Wicker, I would like to try to get a little l
1 clearer understanding of your perception of your responsibility-I l
6; l
7          in this management audit over the span of time when you were 8
doing the work.
l I believe you testified that you were first presented 8f  i 10 l          with a proposed management combination when you saw the l
II l March 26, 1980 Blue Book; is that correct?
I 12                        WITNESS WICKER:              That is correct.
13
                          ,                MR. MC CLAREN:            Do you know approximately when you.
I 14 ',
received that document?
I
                  !$ '                                                    To the best of my recollection, we WITNEb8 WICKER:
16 :
received it on March 26.
i                                                                                                                                                                                      .
MR. MC CLAREN:            And that is the first time that            '
I 18 you had before you an actual draft of any form of an actual                                                                                                                      l 38 '          proposed combidation; is that correct?                                                                                                                                          ,
                            ,                                                                                                                                                                                    i no WITNESS WICKEP.:              That is correct.
1                                                                                                                                                                                    .
                  ,1 >l                    MR. MC CLADEN:            And I believe you also testified 22            that somewhere around the time of January 17, when Mr. Kuhns and' e                                                                                                                                                                                    '
43      '
j' Mr. Dieckamp had testified before the Commission publicly
                    ~
j d                                                                                                                                                                                                          i 24 l g
announcing for the first time that they were proposing a
                  '5
                  ~
management combination, did you receive some indication from COMMONWEALTH REPORTING COMPANY                                                *Tf 7 7617150
 
r32      ,-                                                                              ' 950 ' ; ;
            ; , the PUC audit staff that that should be a particular focus o d
2 ,j the management audit; is that correct?
1 WITNESS WICKER:        Yes. I do not remember the 3}
i specific date, but I am assuming that it was soon after.                It  !
i 5              could have been a couple of weeks.                It might have been less.
i 6              I don't remember exactly when.
i I
            -i
            ',                        MR. MC CLAREN:        Backing up still further in time, 8'
I believe you testified that you were aware of a meeting i                                                                                      i 8
around December 17 at which Mr. Kuhns and Mr. Wheaton and l
10                          Mr. Dial had discussed the value of considering perhaps i
Il cooperatively a management combination; is that correct?
12
('                                  WITNESS WICKER:        Idon'tthinkthatItestifiedijh 13                                            I was aware,because I was present in exactly that context.
i 14 Reading when those meetings were held, that Mr. Wheacon and 15 other representatives of TB&A were meeting with Mr. Kuhns.
l6                          I do not recollect any specific direction being 1                                                                                    ,
                    ;l 17 l'l    . given to me by Mr. Wheaton or anyone else as a result of that e
i 18 1                                                                                            l l.i meeting, nor was I aware -- perhaps I should have been --                        l I
that the subject of the proposal to combine the managements was,
          'O 1
          ~
i in fact, discussed at that meeting.                                            .
          ,        \
          ~1        '
The first that I really became aware of this as, if                    !
                      .i you. will, a serious intent was when the statement was made                      l 4                                                                                    *
            "3 j'' by Mr. Kuhns on or around the 17th'.
            ~
  -        24 N y              Again, I think I said that I am not even sure that                ,
25 f' I was aware of it that day.                      It may have been a couple of r                                                                                                            ;i l3                COMMONWEAL.7H REPORTING COMPANY ,717 761-7150
 
                        ~
r33                                                                                                  955-  ;
i i
O, ~'                      1'            days afterwards.
2                              MR. MC CLAREN:          Could you state for us your 3'; understanding of your responsibility for your portion of the 4              management audit at the outset of the audit?                  I take it that I
5              that was sometime very early in December when you received l
6              the formal          authorization to begin the work?
7l                            WITNESS WICKER:          My responsibility was to lead the a    I        investigative team in what we described as the custcmer i
t
                      ,    9l operations portion of the study.
to 1i                            The objegtives of that exercise are detailed in 11              the proposal that we submitted to the Commission whsnever 12              we submitted it on November              1._
                                                                                      ~
That outlines what it was s-    m 33 !            that we were expecting to do in that customer operations l
34 l portion.
13                              I should point out, however, that - .perhaps it is net is              clear to everyone here -- that involvement in the study of II              GPU, whilst it has been an important part of my responsibility 1
18 l              for the past nine months, it.has not been the only thing that 19: l I have been involved with.
                                      . i.
2'1'          ;                  Therefore, relatively speaking, since I had a linited!
                            ' t 'l role in the preparation for testimony which was scbnitted
                            ~
t
                            '-l1 somewhere in the region of March 4, my involvement prior :c 4,
23 i            that time was much more limited than it was subsequent to the
( )-1                      24 !i March 26 decision, because it was felt that based upcn the                            ,j 25 q specific objectives and requirements of the Commission te l
COMMONWEAL.TH REPORTING CCMPANY 7'7 7617*5C
 
r34                                            -
                                                                                                                                                        ., 956 '    ,
i li
:i preparethattestimony,thatthepreciseissuescontainedig 2l customer operations were not germane at that time when they 3(werelookingatthefinancialissuesandnuclearrelated il          issues.
5'                            MR. MC CLAREN:          Was your responsibility captured 6            then in the specific o_ ;Otive stated on I-2 in the introductory section of this audit report which states about 7
a            midway on the page, " Examined customer service and other 8j related issues developed as a result of intervicws with the 10'0      ; director of the PUC's Bureau of Consumer Services"?                                    That was 11            in the middle of the page there.
12                                                      That was a specific issue, if you WITNESS WICKER:
v                  i I3            will, in the customer operations section.                        But, again, one 14 would have to go back to the total RFP, request for proposal, I
15 ;l and the tots proposal to identify the specific and the i
                                                    '8II range of activities that were involved in that study.
17                            The Commission identified this issue as the only 18 l specific issue that is within the framework of a general I8 management and operations study of the entire company.
                                                    ~
                                                    ' O ;'
MR. MC CLAREN:          Perhaps I missed part of what you if si II
                                                    ~
When I first asked the' question, the only distinct i
i
                                                              !lsaid.
1
)                                                  2"d '
:t area that I heard you identify was customer service related 22 'i        .
g issues.
                                        ~
WITNESS WICKER:          Customer operations.
I I
25 l'                                                  At the outset of this management j                  MR. MC CLAREN:
CoM.' N E.it
* REPORTING COMPANY    # 7 f 71 76 t.7150
 
i
        .              535                                                                                                                                                                      957
                                                              >>            uaie                        ata vou reoeive av aireotioa ero              ene roc                uate                e ee Oc_
2l to consider specifically a management combination?
WITNESS WICKER:        'At the outset of the order, no, I 3l i          don't believe we had received any specific direction to do                                                                        .,
5 that.
                      ;                                                                                                                                                                                        i
                                                                                                                                                                                                    ~
6                                            MR. MC CLAREN:        Did you receive any specific T          direction or general directir. to consider the organizational
                                                                                                                                                                              -                                i 8          structure of the companies and whether that should be changed?!
9                                                                  You have introduced two q.astions WITNESS WICKER:
i 10            there, and I think part of the scope of any management audit                                                                        I t
31            is to consider the operation and organization of the companies 12          being audited.
0-                                                        33                                            You also referenced changes in that, and I think 1
I4 I        whilst we-would expect that, if appropriate, we would make                                                                            l t
I I3            recommendations or suggestions in those directions, that was                                                                        '
I6          not a specific requirement of the original scope of study, I
but                    was changed as a result                  to my un,derstanding of Mr. Kuhns''
18 statement as of the 17th of January, 1980.                                                                                          ;
I9                                                                    So, from the outset of the management MR. MC CLAREN:
                                                            'O
                                                            ~ '            audit until about the time of January 17, 1980, your specific
                                                              .,1
                                                              ~
                                                                  ; work assignment did not change?
I l                                        WITNESS WICKER:- That is correct.
And how would you characterize your
                                                              ~3 MR. MC CLAREN:
f b'                                                      y
                                                              ~        ;
concern during that period of time with addressing the                                                                              ,
'                                                            ~5
                                                              ~
management structure of the Pennsylvapia companies?
COMMcNWE At.TH REPORTING COMP ANY    717' 761 7850
 
r36                                                                                '.958'.
i                                                                              !
4                                                                              :
I C        .
3 JUDGE CASEY:    What period cf time?                    h 2{
MR. MC CLAREN:    From the outset of the audit until      l 3          about the time of January 17, when it was publicly announced
  ~
4          that the companies were considering a proposed management 5          combination.
6                      JUDGE CASEY:    According to my calculations, that 7          would be about a month's time at t.he outside, and it would -
8          depend on how deeply they were involved in the audit at that 8
point and what they had done in the interim period between 10            December 17, the kickoff date which is in the testimony in Il I          the record    and also the contract, and one month, exactly 30 (m          12 h days later when the announcement was made by Mr. Kuhns at t v                p 13 '          public meeting at the Commission.      Perhaps he can explain what
              "            he was doing during that period or what he was focusing ori.
I 15 4
1                  WITNESS WICKER:  Within that time frame, if my I6 ! recollection is correct, I probably spent somewhere in the i
l I
region of 7'to 10 days on this assignm,ent.
I8                        One of those days, of. course, was consumed with the 19 kickoff meeting, if you will, on the 17th and the preliminary 90 0'; interviews with GPU management.
              ~
              '                                                                                    f l
              *l I would say that another five to seven days, again        !j depending upon exactly how many days were involved, were              i i
                '3 involved in making a whistle stop tour of the Penelec and
                                                                                              $j
              ~4      !
q Met-Ed systems to familiarize myself with the service                  ;
              '5
              ~    '
territory, to initiate discussions wit;h management as to their: !
COMMONWEAL.7H REPORTING COMPANY '717 761 7'50            ,
 
    *      ~
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I.      current operations and future plans, and to conduct' interviews 2I and review a documentation as to the current state of the art, 3:        if you will, of that operation; in addition to which during 4 ! ' that period of time        I also had the opportunity of spending 5l some time with the Bureau of Consumer Affairs to review their-6        documentation as a result of the specific request that the                i 7        Commission made, and was able 'co provide input into the 3        group preparing testimony as to the significance of that 9
issue.
10                      JUDGE CASEY:    Bureau of Consumer Services, the PUC 11 Bureau.
12                    WITNESS WICKER:    Yes.
13 '                  JUDGE CASEY:    That is what it is called, Consumer "l    I Services,.not Consumer Affairs.
15 '                  WITNESS WICKER:    Thank you, Your Honor.
16                    MR. MC CIAREN :  Would it be accurate then to summarizC=
II your activity during this one-month period as focusing on 18 l customer operations and not involving the review of management I9        structure or combination management?
20 i                  WITNESS WICKER:    I am not really -- in the sense of 21 not focusing on a specific proposal to combine the manager.enr; 22 f sin.ce I was not aware that that existed, I did not do rhat, b .:t -
1 i
43
                    ^
i  I can't separate an analysis of an operation into            simply    -
      --            24 ! customer service issues and organizational issues.
i I
a5 l
                  ~
I think that one has to loo}t at al1 aspects of the j                      cou c~ ..c,x  e,.c., iso c m .~1 . , , 7 751.,
 
l r38                                                                              ,
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              'l il il operation,and organization is part of that.                                    lll 2j                      MR. MC CLAREN:    Can you describe for us the nature 3; of the direction that you received from the PUC audit staff 1
4 !' around the time that the public announcement was made that the I
5:          GPU companies were proposing a management combination?
t f
6l                        WITNESS WICKER:  I do not believe that I had any            !
I think I stated earlier today that          I 7l specific conversations.
ali        to the best of my recollection, I did not have any specifie 8          conversations with the audit staff; such conversations as 10 [        were had were between Mr. Wheaton and the audit staff.
11                          My understanding of those conversations -- and if          .
7        12 -        you require further clarification, I think you should addren us                                                                                          Q 13 l        the question perhaps to Mr. Wheaton--but my understanding was that because o5 the pote'ntial concerns that would be expressed 14 f                                ,
15 '        and had been expressed at that time by the JARI group and 16 because of the importance of any major change like this in i
II l the Commonwealth, the audit staff requ,ested that we look at 18
: j. the company's proposal.
19                          We were not in a position to do that until somewhere 20        . in the region of March 26 simply because we were heavily n
21            involved at that point in time in preparing the testimony for              ,
i i
22 the. Commission.
23 MR. MC CLAREN:  Was it then your understanding s.
3 24 hl about the time of this public announcement on January 17 thF "1jyouhadbeengivenspecificdirection,toconsiderthe il COMMONWEALTH RCPoRTING COMP ANY 717 761 7150
            - i.i                ._. -          .=
 
  .            .F39        i 961 Oc i        ann-cad proposa1 and nothine -re specific than chae?
2                        WITNESS WICKER:                  Somewhere aftstr that, that became, 3          if fou will, a focus of our study of the operations of the 4          company.                                                                                    ,
5                        My understanding is we were asked specifically to                            j i
6          look at that proposal by the Commission.                        Exactlywhenwewerej          .
I 7
asked to do that, Idon'tknow,butIassumeitwassoonafter;.
8                        MR. MC CLAREN:                  Focusing on your recollection of'?
O        what you understood to be your work responsibilities, you 10          stated in a previous answer that you were busy with preparing 11          the interim testimony for the Commission, and it was not until,:
1 12          did you say      early April that you were able to begin work?
13                        WITNESS WICKER:                  Late March.
I 14                        .MR. MC CLAREN:                    c March.
La'e          From late March until --
15          it was late March when you received the Blue Book; is that 16          correct?
17                        WITNESS WICKER:                  That is correct.
18                        MR. MC CLAREN:                  In fact, you weren't able to work ID          on the proposal until you keceived their Blue Book cn March 26?
20                        WITNESS WICKER:                  '4 hat is, if you will, technically 21                        However, I think that there is an artificial correct.
22 t distinction being made here between reviewing the proposal b
23 { and doing what one would anyway have to do,qiven that you got
                        ,' I j the proposal today,which is to familiarize yourself with the i
25 loperationsofthecompanyandwhattheyarecurrentlyinvolved COMMONWEALTH #EPoRTING OoMPANY .717 761 7'50
_-.-,_rg-        _n-        r- -. m. ~~          _-                    -  -  ~~  -    ~      ----
 
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1 Ill
<-        I ]' in in the service territory and so forth and so on.
I 2 !,:,                            So whilst it was not until the 26th that we 3!1                    reviewed the specific proposal, much of what we had done prior I
          ''                    to that point in time was a necessary exercise or would have
          .5                      been a necessary exercise had we not, in fact, completed that i i
8 before the 26th.
7 MR. MC CLAREN:  What you had done before that time          [
i 8                      was familiarized yourself with the company operations?
l 8                                                  That is correct.
WITNESS WICKER:
I 10 i                              MR. MC CLAREN:  What did you do after that time?
11 l                              WITNESS WICKER:  We continued the interview procesa . i 12 We established our criteria for evaluation. We talked to a
          **'                    number of interested parties including JARI and company                      ,
i 14 '
                      ; management.                  ,
15                                We reviewed the proposal trying to follow through
            '8 ' the calculations and the assumptions that the company had i
17 made to determine whether or not they ,were reasonable.
i 18 '                              We did some comparisons with other utility operations 19 ' ,                with which we are familiar and for which information was 1
20 ;l i' available to determine whether or no't the proposal was I
21
:      appropriato, and we compared it with our experience in the I
industry to determine whether the organizational structure l
            '3 j was, in fact, keepingwithsoundutilitymanagementpracticjll
            ~
24 !                                              Mr. Wicker, if we attempted to J
MR. MC CLAREN :
25 :l focus on a specific point in time being April 10 -- and I h
1l l
__i__'_______ __
 
                          ..      ~                    _    .              __ ._      -                -          . _-                      . _ _ _
963 r40      ;
O                  '            3        understand that you had some dif ficulty recalling whether, in 2'        fact,    you had a meeting on that date with Mr. Smith or what which has been the subject of JARI Exhibit 4 --
                                                                                                                                                            ~
3l        took place 4        but, as of that time, do you now recall how much of 6          your work had been completed, the work beginning on March 26 8
when you received the Blue Book until April 107                                                        Do you know 7        what portion of that analysis you had just described had been I:
r a
completed?
* WITNESS WICKER:                          I don't know that I could put a l
* I IO
                                          !    precise limit on it, but using Judge Casey's prior example, if;
                                    "          you go from March 26 to April 10, then exclusive of weekends t2          we probably are saying some ten days.
13                            At that point in time, I am not sure, but I would
                                    "          guess that perhaps, it was not more than 20 days of the total f
15 amount of other people, if you will, man days that had been h
16 ; applied.
17 I j
Therefore, since I believe t. hat we applied some 18 200 or so man days, that would all argue for about 10 percent,
                                    "          but whether that is a real number or not, I don't know.
I MR. MC CLAREN: Is there a point in time at which no
                                    ~      ;
21                                                                                                                      even a
                                            . you can identify as when you arrived at a conclusion, f . tentative conclusion, that management combination was
                                      "'          o eatas e* e you < te w                                    99roert e aa rou wouta eu99ere iO                    -                .y in some fashion?
                                      "5
                                      ~
Well, I think that we also have to WITNESS WICKER:
l
                                                          ,_. ,_ , _ , . COMMONWEALTH REPCM 71NG COMP ANY_ _ _ _ _ _ _ _ . , _ ,
_ , .7 77 76 f 7t SO ' ,
 
p29                                                                          964 I  separate,here between, if you will, the concept of combining
  ]
2  the management and the practical application of that.        There 3  are a lot of good ideas floating around the world which nobody 4  has ever been able to put into practice, so I would say that 5  the concept of the combination would be something that we 6  probably became comfortable with in the region of middle to 7  late May, and the practice is something.that we became            '
8  comfortable with prior to the publication of our report.
9            MR. MC CLAREN:  You became comfortable with the              '
10  concept in middle to late May, and the practical application 11  by September when the report was issued?
12            WITNESS WICKER:    I am sorry. I am saying that        h 13  prior, to that -- and if you want a specific date, in rid-July 14 maybe or August - ,we had gone through our analysis, and 15  prior to the publication of that --
16            MR. MC CLAREN:  Was your reference to the report 17 that preliminary report given at the annual review of the 18 Commission of Met-ed and Penelec?
19 WITNESS WICKER:    At that time we had satisfied 20  ourselves that the concept made sense, and that to the best 21 of our ability to judge it at that time that the expectations 22  of the company were in fact realistic; but as Mr. Wheaton 23 pointed out before, we were perhaps some 70 percent complete
            '4 at that point in time.
25 I think it was mentioned this morning -- and I just            ;
i COMMONWEAL.TH REPORTING COMPANY (7171 761 7150
 
p30
  .                                                                                        965 e i
I
      -                1 ought to mention it again -- ta did not ask to appear at that, 2
meeting, neither did the comparty ack us to appear at that 3  meeting. The Commission recognizing the unique circumstances 4
of the companies and recognizing the sensitivity of the 5  situation asked us to provide them with an interim or 6  preliminary report, and I think we made it quite clear at 7  that point in time that it was such a preliminary report and
'                      8 one that would be subject to change based upon the completiori 8
of our study.                                                          f 10              MR. MC CLAREN:        You testified previously that after 11 you had a chance to review the draft proposal that you did 12  have some criticism of it in its then existing form, and that 13 you suggested some changes and improvements to the GPU Compann 14 is that ba'sically true?
15 WITNESS WICKER:        That is basically correct.          ,
16 MR. MC CLAREN:        About what time did you make those    .
I suggestions initially?                          -
18 WITNESS WICKER:        Again, I don't think that I can      f I
18                                                                          I
!                          pin down a specific date or time, but I would say that over
                    'O the course of perheps late April through late May, wo were            l 21 in the process of reviewing the company's proposals and i
2, .
providing them with our insights on those proposals; so that            <
23 is the time period I would think.
MR. MC CLAREN:      Did you say in terms of your work 25 you would have begun to offer suggesti'ons for improvement l
commonws4i.rw mePORTING COMPANY (7171 76 f.7150          l
 
p31                                                                                  ,9 6 "> ' ,
m        1  of the draft by the time that you had accepted it in concept 2              WITNESS WICKER:    Yes. That is perhaps reasonable.
* MR. MC CLAREN:    In response to some questioning 4  by Mr..Shilobod, you accepted the characterization of                    an 5  appropriate goal for management consultants and for yourselvas 6  on this project as working toward a proposal which would be 7  logical, defendable and saleable.
8              Are those subtotals in a chronological order?                    Does 9  this project go about first determining if it is logical and                            j 10  then determining if it is defendable, and then if those are                            l 11  answered yes then one decides whether'it is saleable?
12              WITNESS WICKER:    Two things; number one,.I am not 13  sure that I said that that was an objective with regard to 14  the company's proposal.        I think it should have been an i
If                                                                                          !
objective for the company.
I think my reference was to our objective in 16 17  providing the final report, but I don't think again that you la  can separate totally -- at least I am not able to totally                                !
l 19  3eparate thosE three things as totally separate and discrete 20  criteria.
21              Self-evidently, one would probably start with the 22  initial questions as to whether or not it made good logical 23  sense,  but I think again one goes through a process of                                -
24  constantly re-examining the propes31 as new inforeation make 25  itself available, in trying to evaluate it on that basis;                                  l CoMMONWEAt.TH REPORTING COMPANY' 4717 768 7150                            l
                                                                                                      ._.J
 
p32                  .                                                                                                                                                        967 I
O.
I  e== i= 1              ao= o=r coao ra                                    aa          === our coao ra to                a==r-2  that the company made such a proposal.                                                                                              I l
3                        our concern was to review whatever proposal they 4  did make and to ensure that we provided for the Commission 5  an objective review.
6                        MR. MC CLAREN:                                Is it conceivable as you approach 7  something like this, as a management consultant, that it a  would occue to you that the idea is not saleable and, therefore,                                                                      ,
8                                                                                                                                      I
                                            .        you would not go on to delve into whether it, in fact, is i
10  logical and defendable?
11                        WITNESS WICKZn:                                    All things are conceivable.                        I 12  don't think that that is whers I would start in an analysis O-                                            13  of this type.
14                        JUDGE CAS,EY:                              This wording was used by Mr. F.J.
15  Smith, Sr. in his inter-company memo, and I will admit that 4
16  he says that these should be the joint or mutual goals of the 17  three parties that he mentions; number.one, the company; two, 18 TB&AandtheCommission,"toarticulatetheproposedchangesinf i
38  a logical,.defdndable and saleable manner."
20                        Earlier in his testimony, Mr. Wicker said that he 21 is not too sure if he were writing such a report that ha 22  would use the term " saleable" in characterizing the thing;
                                                    '3 but since it is in there, who is the purchaser of this great 24 product?              Is it the public?                                        The Commission?              The company?
25 TB&A?            Who are you~ selling the report to, and why must it be l
COMMONWEALTH REPORTING COMPANY e7171788 7190 w  ww.awg.* rd--eT*    f-W-, e>,w        e    e      e.,  -wpy>v-      e.r --g.---            -.e  g-eg.9-. p-e-    y-  --  y    -
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p33                                                                                  ,
968 1 1  logical and defendable?        Who is going to attack it?        The        khh 2  public?
3              Do you want to answer that, Mr. Wheatch?
4              WITNESS WHEATON: I think that I should make a 5  couple of comments with respect to the saleable question.
6  1 don't doubt that those words were used,            as Mr. Wicker 7  has indicated and Mr. Smith's memo implies.                                -
8              I think one has to take into context the credibility
        . 9  that this company, i.e. GPU, had at that point in time.                  It          i i
10    had for the past year had grave difficulties in presenting 11    its case with respect to any number of issues to the Commissier                        ,
12    and having the Commission buy what the company was saying.                          !
13              It was a credibility -- that is, this company's 14  credibility was in, very poor shape at that point in time.                          j i
15        -
For the company to be spending a great deal of                          ;
l 16  effort putting together a proposal which, in effect, was 17    not saleable would be perhaps a patent, waste of the company's l 18  time,  so I think the question of saleability is certainly                        l 19  one that, while not high on the' list, is certainly one of 20    grave importance in terms of what sort of product in the 21  proposal the company    put forth.
22              MR. MC CLAREN:        Mr. Wicker, you are responsible 23  generally for Section VI of this report, are you not?
~
24              WITNESS WICKE2:          That is correct.
O, 25              MR. MC CLAREN:        On page VI-14 in the paragraph COMMONWEALTH REPORTING COMPANY (717) 781 7150
    --  -      --~
                                      = - - _ . _ - -  _____-e-        _-:--------          . - -
 
                                                                                                                                                  =
              ,'.p3 4 .'                                                                                                                                              969
                                                                                                                                                                            )
i O                                                          i  3ust eheve the headine                    ceneretion                    ehere is e seatemene.          l 2  "In its original plan, GPU underestimated the resources, time                                            i 3  requirements and overall magnitude of implementing the                                                .
4  management Combination."                                                                              .
5                  Can you be more specific about what that statement 6  means?
7 WITNESS WICKER:                    I would have thought the fact that a  we are sitting here today is clear indication of what'that 9
                                                            -    statement means.
10                  MR. MC CLAREN:                You thought they underestimated                        ,
11  the difficulty of getting regulatory approval?                                                        !
l 12                  WITNESS WICKER:                  Amongst other things, yes.                          ,
U ''                                                                                                                                                                l 13                  Again, based upon the fact that we are sitting here i 14  today, I don't think there is really much need to clarify 15 that remark.
Is                  I1R. MC CLAREN:              What sort of resources were you 17  referring to?                                                            ,
l                                                              18                  WITNESS WICKER:                    In order to put together and, 19  more importantly, to implement a major undertaking of this 20    type, you inevitably need the involvement of a number of levels 21  of management and may or may not need the involvement of some 2'~  outside resource to ensure that it is done in an objective
                                                                '3
                                                                ~
and proper manner.
O u.                                                        24                  I don't believe that the company in its original 25 plan and in the statements that were :pade in the January COMMoNWEAt.TH REPORTING COMPANY (7171 761 7150
                                                                                        ~                            .            . . . .      .      . . . . . . _
  , _ _ , . .  -__y,.,,.,-.__,..m,, , , _ , . . _ _ ,,.,,..
                                                                    ,__,,,--- _ , , . - - , , ~ , . , ,,. .4
_ ,, . , - - m._.-,  , . _ _
 
                                                                                            '. 5 p35                                                                                          970 0
1  proceedings before the Commission recognized, presumably 2  because they had not -- at least the individuals involved 3  in pr eparing that plan and who had been involved in preparing i  that plan recognized the significant amount of time that 5  would be required te precisely specify every element of this 6' proposal such that it would be available for outside scrutiny.
7                        MR. MC CLAREN:  Can your comments in that paragrapft 8  be interpreted properly to say that GPU underestimated the
                  '  8 costs of, undertaking this management combination?
10                        WITNESS NICKER:  I think that that would be  a 11  reasonably fair characterization.              I'think they also 12  severely underestimated the benefits, to the extent that ther 13    is a wash in there.
14                        UUDGE CASEY:  I might add that I hope they haven't 15  underestimated the costs, because they have been documented i
l                    to    in this record through testimony; and if we are being thrown 17 a curve, then we are in a little bit of trouble.                            l l                    18 But were you fully conversant with what the costs 19 of all of the relocations and the --
20                                          I think the question was posed in WITNSSS WICKER:
21                                                    Yes, we were fully terms of the time required to do it.
22    conversant with the company's proposal in terms of the 23 ' specific relocation costs; and, of course, when you look at h!              ,
24 costs of management time, to the extent that management is 25 there it is an embedded cost, and now you really have to start L
 
971, p36 ,
i l
O~'                      I  to evaluate opportunity costs of them not spending their 2  time at something else.                  I think those kinds of costs are 3  very hard to properly que ntify, but I would stick with the 4  statement that we have here that we feel that they under-5  extimated the resources and the time requirements and overall 6  magnitude of undertaking the management combination.
7                        MR. MC CLAREN:      Do you continue to have that 8    concern in any respect?
8                          ! FITNESS WICKER:  I would think that as a result 10      of this process -- and that is everything from our involve-11      ment through this proceeding today -                  the company has a much 12      clearer understanding of what is involved.
O                    13                            So to the extent that they are at this point over--
14      estimating or underestimating the resources required, I can't 15 comment.              This comment was based upon our perception at that is      point in time; but              it would be very surprising to me if' 17      they did not have a much better understanding now than they 18 l                                  did then.
18                            MR. MC CLAREN:    On page VI-22, the paragraph at 20      the top of the page, the second sentence reads, "With other
!                          et pressing demands on management's time, it may be difficult                        !
j                                                                                                                    .
22      for.the Company to devote the resources and organizational f                                                                                                                    i I
93 j
                          ~
expertise necessary to implement the management combination                      j 24 in a timely fashion.",
25                            Couldyoubemorespecificpboutthatconcern,which!
COMMONWEAL TM REPORTING COMPANY (7171 761 7150            ,
e-_.___-
 
1 p37                                                                        972
  <~.                                                                                  ;
(_l        1  I take it is a current concern?
2              WITNESS WICKER:  The company's management is involved 3  in managing the operating companies in Pennsylvania and New 4  Jersey. There are other events which take place; the accident      ;
1 5  at Three Mile Island    and all that has flowed f rom that, the 6  formation of the Nuclear Corporation, these proceedings and 7  many other events which are placing an additional demand on' 8  management's time.
9              We simply wanted to focus people's attention on 10  the fact that this was a major undertaking and that it may 11  be difficult for the company to devote resources necessary 12  to implement the management combination in a timely fashion;
(~.
  ~.
13  and, again, I think the fact that we are sitting here today 14  illustrates that vgry cle: Fly.
15              MR. MC CLAREN:  I understand it. I take it one of I                                                                                    l 16  theconcernsthatyouarereferencinghereisthatMr.Verrochy 17 has been here for several days instead.of attending to company is af f airs . Is that the kind of thing that you were concerned ,
19  about?
20              MR. JOLLES:  Inster.d of; is that your question?
l            21              MR. MC CLAREN:  Instead of.
22              WITNESS WICKER:  I think that is a key word, because 23  I would consider this proceeding as a fundamental aspect of lll l 24  the company's operations.and affairs, so while I don't wish        :
i 25  to evaluate the appropriateness of Mrs Verrochi being      here,  f f
f
 
l
* 973 ,
9 3SJ l
            .                                        1    I certainly would take a very sincere interest if I were in                                4
                                                -2        his position.
3                        MR. !!C CLAREN:                  When you were evaluating whether      ;    ,
Ii i
this was appropriate, either in concept or in application, 4
s    did you consider whether this is the appropriate time, given i
6    all of the other expense that the company is facing in 7    financial and regulatory?
8                        WITNESS WICKER:                    If I might digress for just a        j 8    moment, one of the things that is constantly posed to us as                                  ;
i 10      consultants when we go in a'nd are involved-in the process of                              l 11      a change in organization is that this is not the right time.
12      There are all kinds of other.. things going on, and now is not 13      the time.-
14                          "Now is ,not the time," ic, the statement that is 15      made more often than not; so whilst we look to that, I think                                !
16      you really have to look at the whole question of cost 17      avoidance in this regard.                                            ,
i is                          The facts are thet through the regulatory process                        t 18      there are additional requirements that the company has to 20      satisfy.
21                        The facts also are that as a result of the desire 22        to form the GPU Nuclear Corporation, which we find appropriate, 23      that imposes additional                            needs on the company, and the e Q
24      are other things which again are documented in the report which 25        require them to do something.                                  ,
COMMoNWEAI.TH REPORTING COMPANY 47171 761 7150
                                            . . . . - . .  ,_ . . . - . . . .          _ . _ . - , - . _ _ _ . _I      $.._ . l._ 1..  -
                                                                                                                                              ~~T-~~~
 
p39                                                                              974:
O
[.        1            They can't just sit there waiting forever and a day.
2  They will have to either combine the managements and gain 3  the cost avoidance benefits from doing that or they will have 4  to hire and put in place the staff necessary to enable them 5  to effectively run the corporation.
6            MR. MC CIAREN:    Are you saying, Mr. Wicker, that 7  when a consultant goes in to a company and proposes changes' 8  or when the change is being considered, one often or almost                ;
          . 9 always perhaps encounters some resistance that this is not
                                                                          .                L*
10  the correct time, that this may be no different?
l
'            11            WITNESS WICKER:    You said -- the question as I 12  understood it is: is this the best time or is this the right 9
l 13  time to do it?
14            What I ao saying is, in my opinion, if they do not 15  make progress in this area in the near future, it is not 16  going to be a question of cost savings to the customer; it 17  isgoingtobeaquestionofadditionalcoststothecustomer,f
'                                                                                            i 18  because in my opinion in order for them to properly manage                  !
l 19  the companies they will need to add a significant number of l
20  personne'                                                                  i 21              Therefore, based upon that, I would say that whilst 22  I recognize there are other pressing demands on their time, 23 whilstIrecognizethatthingsaren'teasyforthecompanieh v
24 right now, that if it were my choice I would suggest that                  +
25 they actively pursue this combination subject to these                        1 l
l                        -  .              -  .  -
                                                        . . - -  ~            . -
 
p40                                                                                          975' I  proceedings and whatever other judgments are made.
2                  MR '. MC CLAREN:  On page II-6 of the report, the 3    paragraph just ahead of the heading " Energy," there is a 4    sentence which reads, "If GPU is not allowed to recover clean-5    up costs through rates and if the Federal Government does not 6  offer financial assistance, then bankruptcy or a reorganization 7  is probably both imminent and certain."
8                Did that concern enter into your determination of I
9  whether this was an appropriate time to undertake a management' to    combination?
11                  WITNESS WICKER:    To an extent, but the thing that 12    I am having a problem with in,trying to explain here is that            !
13    we are not -- the company is never dealing in a static 14    environment.            ,
15                  People want to flip the switch and have the light 16    go on.      They have to run the company.      They have to do whatever.
17    is in their judgment the most appropriate thing to do in order 18                                                                            I to provide service to their customers in the most appropriate            ,
19    fashion.                                                                I 20                  So while it is possible that at some point in the l
21  future they may be bankrupt and whilst obviously the possibilit'y l
22    for .them to go bankrupt is perhaps a more imminent concern l
23  than for other companies, I don't think that they can just O-                        24 sit around waiting to see if they are going to go bankrupt 25 before they make any other changes in the organization.
* COMMONWEAL.TH REPORTING COMPANY 47t"D 761-7150
 
4      %
                                                                                                        '970 p41                                      ,
I So I think the two things are separate.              I think
(          1 2  we have discussed at length the fact that, at least'as far as 3  we are concerned, there appears to be no financial or legal                                    i 4    implication of this combination on the two companies.
5                              If they go bankrupt, it will not make, as far as l                                      ,
1 8  we can see, any significant difference.                          So given that we 7    don' t know that they are going to go bankrupt - and I am sure a    that everybody hopes that they won't -- then I don't think 8  there is any sense in waiting around for an indeterminant                                    ,
10    period of time just to see if that will happen.                                              :
11                              MR. MC CLAREN: I would just'like to explore very                    ,
briefly with Mr. Wheaton essentially the same line of
{.        12 13    questioning that I pursued with Mr. Wicker.
14                              That is the perception af what your responsibility,                  ,
15    what your goal was with respect to the management combination.
16                              ttr. Wheaton, from what I have heard of Mr. Wicker's was not II    answers, at his level at least, an attention
            !8    specifically focused on this specific management combination                                  ,
I9    until about the t.i*ie that the Blue Book was received.
20                              at ule same time we have JARI Exhibit 2, which 21    contains a memorandum from Mr. Kuhns dated December 21, which 22    relates that at that meeting which he attended, in paragraph 2,
              '3 which has been referred to previously here," Perry Wheaton a g                          .
s_/                                                                                                        W 24 John Dial suggested strongly that we explore with them on 25 a cooperative basis the possibilities of such a move,
__ -    _      _ _ _ . . _ _ _ __        @EuricowC30sTH RiEPoRTING COMPANY t7171 761-7150
 
p42                                                                    977 1  indicating.that it could be one of tl.e most important 2  suggestions to come out of the audit."
3            Then there is a reference to the two Pennsylvania 4  operating companies.
5            Is that an accurate characterization of what took 6  place at that meeting, to your recollection?
7            WITNESS WHEATON: I think I testified to that this a  morning, but in general that was a reasonable portrayal of
          - 9  what happened. I don't recall the wording that I used before.
to            Let me respond by putting our efforts over the i
11  first six weeks or so of our project -- that is from December !
                  .                                                              I 12  17 on -- in that context, our: major focus, if you will recall, On                                                                              .
13  was to prepare testimony to submit on financial issues by 14  February 15t.      .
15            In that context, in terms of John's area, that is 16  I guess what yGC Would call customer operations, his charge 17 in those eight or ten days that.he spent during that 18  time was twofold in nature.
18            The first one was to see if, in fact, there was i
20  any lack of -- any detriment to the customer service levels 21 because of the ccmpany's deteriorating financial posicion,
                                              ~
22  and -that was a very specific request, to make sure chat 23 customer service was not impacted by the company's financial v
24 l                position.
l 25            The second objective was to identify whether there        ;
I COMMONWEAL.7H REPORTING COMPANY (7171 768 7150
 
i e    i p43                                                                    973
[  1  were significant cost savings that could be accomplished 2  immediately.
3              The third output in that context was to, in effect, 4  start preparing what we would cel'. a more detailed work plan 3  for the events and the audit subsequent to the submissiort of 8  testimony.
7              So really, he had those three charges, and the a  context of the proposed management combination was not the 8  primary issue of our concern for the first two or three montbe to  of our project.
11              Although it came up in the first;neeting with Mr..
    ' 12  Kuhns, we really were focusing on other more pertinent and 13  at that timo more timei.y issues that needed to be considered.
14 MR. MC C MRE1. Mr. Wheaton, if that is the 15 phrasing of the sentence that I read previously, if it is 16  an accurate characterization of the meeting, that is that 17 you and John Dial suggested strongly that "we explore with is them on a cooperative basis the possibilities of such a move, 19 indicating that it could be one of the most important 20 suggestions to come out of their audit," isn't it difficult 21  not to read those'words and conclude that you had either 22  . determined preliminarily that the Commission wanted such 23 acombination,orthatyouthoughtitprobablywouldbeagog 24 thing?
25                                  I guess this is where I would WITNESS WHEATON:
I
                    -- --__-rrrrrmn c.r-mvm asa renam -                      i
 
p'44  '
979 p,
4/ .. .        1  differ if I had made notes on this same meeting.                    I don't 2    think that I would use the same phrases as I hear them read 3  to me now.      They are somewhat loaded in that context.
4                I think that the question that came up, the issue 5  of whatever organizational changes might be in the works, the 6  company indicated that it was considering the possibility 7  of combining these companies; as the Bureau of AQdits,                  TB&A 8  was interested in making sure that there was a focus to our 9    study. That was put on the table as being something that 10    ought to be considered and discussed later on as a point of 11    further study in the overall management audit.
12                I don't think that'any of us -- as I say, I think 13    I mentioned this morning -- had any idea of whether that 14    made sense or not.. I mean all we knew about Met-Ed and 15    Penelec at that point in time in reality was what we looked 16    at in terms of their service area, what it 1 coked like on I7    the map.                                        -
18                We had no idea of what a combined company might I9    mean or what it might not mean; so any thoughts, at least on 20    my part -- and I can't speak for Mr. Dial -- but I would 21    suspect that he had no preconceived notions in terms of what 22    the' company should do.                  ,
        '        23                I think you also have to keep in mind that the O"              u    credibility of this company at that point in time, December 17,,
I 25    in terms of anything that they might h' ave said, it is a matter              ,
COMMONWEAL._TH, REPORTIN3, COMPANY _ 87171 761 7150 _
 
W    '
p45                                                                98G 1 of public record in terms of the prior statements that this 2  company, at least in terms of the Commission, could not be      i i
3  counted on in terms of having any credibility in any statementsi 4  that they might nake.                                            ,
5            So the fact that we might discuss something like      i 6  that that the company was putting out on the table, a 7 proposed combination, was one that I certainly would have been 8 very skeptical about in terms of its being a valid area or 8 a valid move for the company to make unless it had a great to  deal of scrutiny.
11            JUDGE CASEY:  Mr. McClaren, 'let me break in for a 12  minute.                                                      h 13            To an outsider, one might read behind the lines of 14  that commeiit. In one sense you would say: here is Mr. Kuhns    ,
15  who has the management combination program coming up, and all 16  of a sudden he says, "Oh, boy, now I have the chance to enlist l
17 not only Theodore Barry and Associates, but the Commission, to 18  sell my idea to the Commission or whoever else I have to sell 19 it to on down the road."
20            He could have been indulging in a little wishful 21 thinking at that point.
22            On the other hand, the way that he phrases this, 23  it sounds as though yourself and John Dial either jumped on 24  this subject as soon as he brought it up or maybe you initiatec 25 it in this frame of mind: an audit is a very sterile document,
 
p[46  ,'      '                                                                        981 .
l O [,.        I      you know, but here is a chance to hit a home run for our                l 2      management consulting team.          We are not only going to give 3        them a great overview of this corporation, but we are going 4        to inject a little medical aid into the situation and it is 5      good for business.
6                    Po you know what . mean?      Did either of those 7      circumstances exist?
8                    WITNESS WHEATON:      I would say that in my mind the
            -  9        f act .--- even. on that first day our .whole approach was that      I 10      we were undoubtedly dealing with a situation that didn't 11        need a band-aid but might need major surgical operations; and 12        if that major surgery included combining the companies then (J
13        Mr. Dial, Mr. Wheaton, Mr. Kuhns, anybody was willing to do 14        that if it'made sense and if it fell into the whole context.
15                    I think that I could certainly think that there 16        wod1d have been a reasonably avid discussion, but I would also '
17        recollect that Mr. Kuhns at that point.in time certainly gave 18        no indications of any magnitude of any potential savings.
19                    As a management consultant, I would percieve that        ,
20        there might possibly be significant savings by going about            f l            21        some sort of combination; but again, using my professional            i 22    . judgment, in one day and in one two-hour interview with Mr.            ,
23        Kuhns, we weren't about to say: hey, that's great and let's l    ..
l      "
24
!                      run with it; that type of thing.
i 25 l                                  JUDGE C ASEY:    All right. Itemay have been that to  l t
coh MONWEAL.TH REPORTING COMPANY (717' 781 7150
 
982.
p47                          l O
1      the insiders, the specialis'ts such as yourself -- it may have 2      appeared initially that it was a band-aid approach to a very 3      very serious problem; but what about the psychological effects 4      on the public?
5                  Here is a company or a system that is crippled by 6    a series of nuclear accidents, and this is good PR; this is 7      good imagery; it shows 1. hat the company is not sitting around 8      -- the officers are not sitting around a bar crying into 8
their martinis. They have ttPen a positive go-ahead approach 10      to this thing in putting together a whole new restructured 11      management to show the public that this isn't going to happen d.'.d that thought 12      again and "we are still alive and well;"
{
I3      occur to you?
14                  WITNESS WHEATON:  Certainly in those conversations 15      at that meeting, the question of the problem with the Met-Ed 16      name came up,    and that was a very real public relations 17      problem that existed; and I suspect that there was -- without la      recalling specifically questions in terms of: well, if you 19      were to combine these companies, would that be a -- would you o    get rid of the Mat-Ed name at that point in time? Is that 21      a desirable thing to do, and that revolved in suggestions in 22      terms of the historical perspective of the people in Pennsyl-
                                                                '3 vania with respect to the relat se companies.                                      g; If that is responsive to your question, I think that
                                                    ~
24
                                                                'S that type of discussion certainly was ,part of that overall
 
983 948 1
      . . .              conversation.
2                  JUDGE CASEY:    Some of these aspects, the unfavorable 3      connotation of Met-Ed because it was intimately associated 4      with the accident -- of course, now we know that as part of 5      the combination there would be a -hange in names, Penelec East 6    and Penelec West.      That was a possa.b.        outgrowth of your            ,
7    early discussions along those lines.
8                  Did you have anything to do with that, by the wayr 8
with changing names?
I8                  WITNESS WHEATON:        No; we had, as I recall, one II      review meeting, and the question of odce the company was
, OL I'
movine reasoneh11 far down the tine in eerms of it comhina-13      tion and starting to make some sense and starting to hold up
                ' I4      under scru' tiny, thy cuestion of names came up.
15                  I recall my particular comment in that context was is      that when the company considers its name changes, they.should I7    go out and get professional advice in that context because 38 certainly in the context of Mr.' Wicker and myself, I could I8      speak for the fact that we are not experts in terms of PR 20      and in terms of the selling concept, and also it was patently 21 clear in that particular meeting that the people from GPU                        ,
t 22      were not experts in terms of public relations aspects, and I l'
W
                    '3
                    ~
am not sure exactly how the name ended up being taken, but                      ;
O                24 I think there was a frank admission at that point in time                        '
5 that there was a need for some help iry selling that process,                !;
i CoMMcNWEALTM REPORTING CCMPANY 17171 793 7150
            ~          -      --
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934      '
p49 I
t 1    and I think that we ended up saying: if you are going to 9'
2    change that name, you had better get somebody who can tell 3    you what to do about it, and we sure don't have any ideas 4    because we can only speculate as we are here today as to 5    whether or not that is an appropriate name change or not.
6                JUDGE'CASEY:' With that answer I have been properly-7    informed and neutralized, and I will switch the questioning a    over to Mr. McClaren.                                                    ,
i 9                MR. MC CLAREN:  Mr. Wheaton, haven't you stated            ,
10    more than once here -- and I think it is contained in your 11    report, although I can' t find it bumediately -- that it was k
12    your conclusion that there are no legal and financial consed s_~
13    quences to the management combination?
14                WITNESS WHEATON:  To the best of my knowledge, yes.
15                MR. MC CLAREN:  Whatisthebasisforchatstatement%
i I
16                WITNESS WHEATON:  I think the basis was in questions 17    that we asked of the company in terms of what those financial i 18    implicStions are. Did they see.any?  Was there anything                .
19    legal in terms of forming a new entity?                                    ,
20                Secondly, as I think I indicated this nerning, I 21    am familiar with another holding company that has gone through 22    exactly this sort of combination, and, in fact, has separate 23    operating companies who are operating under one canagement ggg ~
t                                                        24    combination.
25                We were able to get that background with respect    to
 
p50                                                                                                            985 1      how the company had proceeded with respect to its merger at 2      the Jersey Central Company and the Jersey Power and Light 3      Company, which had taken some ten or twelve years, and the                                    !
4      company had in that process gone through an original management 5      combination and then subsequently worked out '.he financial 6      and legal implications to make that, in effect, a financia.1 7      and legal merger.
                                                                                                        ~
i a                          I think that that sort of review -- overall review                      t
                      -    8      of the financial position of that company,.in that context 10      Mr. Hogan became very familiar with'all of the aspects of the i
l 11      revolving credit agreement and things'like that, and all of                                  :
12      the information dat we had available to us -- and I believe 13      this probably included discussions with the companies' legal 14      counsel,..but I can',t document that specifically because over 15      time we had any number of discussions with Mr. Liberman and 16      other people of the company who were involved in the legal 17 aspects in terms of whether there were, in fact, any legal or 18      financial -- so to the best of our knowledge that is what we 19 did.
20                          That is the basis for our conclusions in that area.
21                                            Mr. Wheaton, words can at times be JUDGE CASEY:
22    .important; semantics, you'know.                    There is a distinction 23      between saying there are no financial or legal implications 2i      involved in this move, as against saying, "We see no financial 23 or legal implications."              Which was it?>
COMMONWEAL.TM REPORTING COMPANY
                                                                            . _ _ . _        #71'.M 7517130
 
p51                                                                              934 1
It sounds as though in the report you are ruling 2
out any possible financial and legal implications in this move.
3 Did you intend to do that that emphatically, or were you i
simply saying that we, the auditors --
3 WITNESS WHr.ATON:  To the best of my knowledge -
a let's keep in mind the' verification processes that we go 7                                                                We have a through in terms of putting this report together.
8 statement in the ?.ntroduction that says that before this report goes to press it was reviewed in detail for statements 10 of fact by, first, the Bureau of Audits, and the, secondly, by the company; and they in and of themse1ves had a responsibility
                                                          ~
Il
[.      12  to come back and say: hey, the basis of the facts and the                  lll 13 findings and conclusions are based on facts, to the best 14 knowledge of everybody involved.
15 So when we put something like rhis together, I would 38 preface my comments to say that there are no legal or financial 17 implications -- to say that to the best of our knowledge, of r          18 all the people that played a role in inputting it, there was l
l 19 none that would have at least a significant snount .of impact 20 that they would say: hey, hold back from that; that sort of l
a statement.
2 JUDGE CASEY:  I understand.
            '3
            ~
  ~
MR. MC CLAREN:    Is it part of your final conclusi0
  ~
44
            ~
that the company should study the possibility of a fermal                  *~{
25                                              '
merger of the Pennsylvania companies?                                            ;
t                                                                                                i COMMONWEAL.TH REPORTING COMPANY 17171 761 7150                    $
J
 
p52                                                                                        987 I                  WITNESS WHCATON:        I think I have indicated that in i
i 2  our recommendations on VI-21, the last point on VI-21, and 3  that is to assess the potential benefits, costs and timing of I                  !
4  a financial and legal merger of the two companies, and I 5  think that at the end of that line, and from our experience                      g 6  and from everything we heard, it is something that is likely                        .
7  to take place over a ten or twelve year period of time, which                    '
strikes me was the time that it took with Jersey Central, and a
                      . 9  we learned of nothing that would indicate that this was to  something -- assuming no major changes-in the corporate                          .
11  structure of GPU, that there would be anything different.                          ;
12                    I am assuming business as usual, and that the 13  companies would return to a reasonable financial position.                        .
14                  MR. MC CLAREN:    Your Honor, that is all the 15  questions I have at this time.
16                    JUDGE CASEY:    I think that this is an appropriate l
17  time --we may be overdue -- to adjourn, today.
I 18                    I don't know whether there is any desire to pursue 19  matters with the three individuals.
20                    I would like to thank them for appearing here today.
l
!                          21                    MR. RUSSELL:    I have one or two things here, just 22  a housekeeping matter.          I'would like to have marked for 23  identification Penelec/ Met-Ed Exhibits'10 through 13 inclusiJa,                    !
f()'
l 24 which are the Board resolutions to which I made refarence 1
l 25    the other day.          I have handed them to phe reporter, ccoles or l
I cOMMONWEA4.TM REPORTING COMPANY e7th 76f.71SO
  - - -  -=. _---.----            - - - - - ;.,. _.  ; .--
 
p53                                                                          988  l 1 them certified by the respective secretary.
2            JUDGE CASEY:    We will admit those docurents, since 3  we asked to see them.
4                                    (Whereupon, the documents were marked as Penelec/ Met-Ed 5                              -      Exhibits Nos. 10 through 13 for identification and were received 6                                      in evidence.)
7        ,
MR. MORRISON:      Your Honor, at this time I would 8  move for the admission of the Administrative Staff Exhibit, the 9
Theodore Barry and Associates Report.                                  f I
10            MR. RUSSELL:    I have one er two questions of one 11  of these gentlemen, and I just wan'; to raise one: what is the 12  status of their appearances herr, as witnesses?        Are they 13  finished at this point subject to any further cross-examination 14  that I have, or does Mr. Shilobod have further?
15                              That was my understanding just a JUDGE CASEY:
16                      Correct me if I am wrong.      I thought that few minutes ago.
17  Commission Trial Staff had concluded questions.
18            Mr. Messer, of course, had to leave.          I believe that 19 he finished what he wanted to ask.
I 20            Mr. Shilobod gave me some kind of an indication              !
21  that he had no further questions.                                      !
22              MR. SHILOBOD:    I had hoped -- I had a substantial i
23 number of questions that I have eliminated, and I don't thin            ,
    ~
24                                All I would want is the right to I am going te need them.
        "5
        ~
call the witnesses back if it is needed.        I don't contemplate      l l
l                          coMMoNWEAt.TM REPORTING COMPANY 7t"A 7617150
 
p'54
              *                                                                                                                              . 989 i
(:)-(                        1  it at this time.
2                  JUDGE CASEY:                To recall them for some purpose?                                      !
3                  MR. SHILOBOD:                If there is some additional item of                                  ;
l 4  cross-examination that is a result of all o5 this elimination                                                    .
5    that I have done.
6                  I don't contemplate it at this time.
7                  JUDGE CASEY:                We will assume that there isn't any*
* f I
8    thing that you wish to do unless we hear to the contrary.                                                    It 8    might be handled by interrogatories between hearings or 10    something of that nature.
11                  MR. RUSSELL:                What questions I have I could make                                      ,
12    in appropriate argument on'the basis of what is in the record
( )]                                                                                                                        The hour is 13    without refining them further at this point.
i
                                                    ~
14    late.                        ,
15                  JUDGE CASEY:                Very good.
l 16                  All right, gentlemen, we have already have one l
f                              17    additional hearing scheduled, and I will simply remind you 18    that it will be Friday, December 19, 1980 in the Executive 19    Conference Room of the 11 orth Office Building, at which time 20      we expect the JARI petitioners to open their case in this 21    proceeding.
22        -
MR. SHILOBOD:                Is the case of the utility rested 23    at this point insofar as their side of the case is concerned?
24                  MR. RUSSELL:                First of all, I haven't offered 25    statements and exhibits into evidence l and I had conte =platec COMMONWEAL.M REPORTING COMPANY a7tM 7617150                        _ _ . _ _ _
_ . . .  . . . . - . .      e
 
p55                                                                                      996-l i
1 not doing so until we had the last exhibits identified of                          .
2  Mr. Verrochi, which is Exhibit 9.
3            JUDGE CASEY:    Mr. Russell, I will permit you to do 4  that. You may offer your exhibits later, or you may do it 3  on the morning of December 19 or oil the last day of hearing.
6            MR. RUSSELL:    All right.
7 JUDGE CASEY:      So technically you are not offering 8
any further direct testimony in your case except for the 8
exhibits and statements that have not been entered into the 10 record, but you may have some rebuttal.
II MR. RUSSELL:      I think that we would have some 12                                                                                    '
rebuttal at this point with respect to the Theodore Barry
{
I3    report, including the exhibit which is the respondent's I4    implementation plan filed with the Commission, with respect I3    to that, and whatever further rebuttal evidence we will have is we will have to wait and see.
I JUDGE CASEY:      And Mr. Morrison tried to offer the 18 TB&A report, which has been marked for identification as i
I8                                                        If there are                !
PUC Administrative Staff Exhibit Number 1.
                ~O no. objections, the report will be admitted into evidence.
                ''~ 1 (Whereupon, the document marked l                2.,*
as PUC Administrative Staff I
Exhibit No. I was received in evidence.)                                  ;
23 MR. RUSSELL:    May we go off the record for a momen 24 Ma. nc CLAREN:    Just before we do, Your Honor, do we 25 CoMMcNWEAt.TH REPORTING COMPANY (717 761 7150-
  - yy  , . . . .,                                                              ..
 
991 p56    s
(]),                              I    have anything on the record as to who the JARI witnesses will 2    be?
3                                JUDGE CASEY:          Mr. Shilobod mentioned their names 4    late yesterday afternoon.                                  There are three in number.            I 5    think there is one from the JARI organization itself, and then 6    there are two corporate executives from two of the Penelec 7    commercial or industrial customers, the corporations.
8                                  MR. SHILOBOD:          We reserve the right to call two
                                  -      9    rcpresentatives of the various entities that we represent, 10    and one expert witness.
11                                  JUDGE CASEY:        There was an expert witness, a former 12    Touche-Ross management consultant?
O-                              13                                  MR. SHILOBOD:          That is right.
14                                  MR. MC CLAREN:              Will there be prepared testimony, 15    and will we have this?
16                                  HR. SHILOBOD:          Yes.
17                                  MR. RUSSELL:        There will be several witnesses that 18    we will be asking to have available for possible rebuttal; f                                        19    will they be available on the 19th, Mr. Shilobod?
20                                  MR. SHILOBOD:          Honestly, Mr. Russell, after our                      I l
21 meeting yesterday I did not go and call them, but I presume                                                  l t
22  . that they probably will be, and I will attempt to find out                                                  ,
23    tomorrow or the next day                                  if there is any difficulty.on the s
24                                    I believe that they will be.                                              ;
(e}
schedule.
25                                    Should I presume that those pwo people should be I
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i present, those three people that you want?
0  j
(_  1 l
2            MR. PUSSELL:          I think one of them you had intended.              l 3  to call anyway.
4            MR. SHILOBOD:            Two of them.
5            .TUDGE CASEY:          Yes.
8            MR. RUSSELL;          Mr. Kunkle was one of your witnesses?
7            MR. SHILOBOD:            I reserve the right to call him, 8  but I haven't made a decision whether I would or not.
t 8            MR. RUSSELL:          We can't tell to the extent that we 10  would want them for rebuttal until we find out what your case 11  is.
(~ 12            MR. SHILOBOD:            I thought you wanted him as of cros            k L
13  examination.
14            MR. RUSSELL:          In rebuttal.
15 MR. SHILOBOD:            I didn't understand the rebuttal, 6
to  since we haven't put our case on.                                                      f 17            MR. RUSSELL:          With the time frame under which we 18  are functioning, I guess we have to have this.                                        l l
19                                    We have to anticipate; I agree.
JUDGE CASEY:                                              ,
20              Today's meeting is adjourned.                    This hearing is now    .!
21  in recess until 10:00 a.m. on Friday morning, December 19, 1980'.
22  .Thank you very much.
23 f-                  (Whereupon, at 5:07 p.m. the hearing was adjourned g 24  to be reconvened at 10:00 a.a. on Friday, December 19, 1980 1
25                                                            e in Harrisburg, Pennsylvania.)                                                          ;
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I CERTIFICATE 2                              I hereby certify, as the stenographic reporter, 3      l that the foregoing proceedings were taken stenographically 4 ;) by me and thereafter reduced to ty;pewriting by me or under 3[                my direction; and that this is a true and correct record to 6! the best of my ability.
I COMMONWEALTH REPORTING COMPANY, INC.
By:(            vy 8                                                            Phyllis Glass to i
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Latest revision as of 14:47, 23 December 2024

Transcript of PA Public Util Commission 801210 Restart Hearing in Harrisburg,Pa.Pp 750-993
ML20003B535
Person / Time
Site: Crane Constellation icon.png
Issue date: 12/10/1980
From:
PENNSYLVANIA, COMMONWEALTH OF
To:
Shared Package
ML20003B456 List:
References
NUDOCS 8102120361
Download: ML20003B535 (243)
v • d • e


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